REVISION QUESTIONS

Section A: Multiple Choice Question (MCQ)

1. Which of the following would lead to the creation of some consumer surplus?

A. Sam refuses to pay RM10 for haircut because it is only worth RM8 to him.
B. Fred buys a car for RM4000, the maximum amount that he would be
willing to pay for it.
C. Jemmy pays RM30 a month for phone service, but it is worth RM70
to her.
D. When Fendy purchases a candy bar for RM0.50, she uses RM20 to pay for
it.

2. Which of the following is true about producer surplus?

A. Producer surplus is how much more it costs sellers than they are paid.
B. Producer surplus is shown graphically as the area under the demand curve
and above supply curve.
C. An increase in the market price due to an increase in demand will
increase producer surplus.
D. All of the above are true about producer surplus.

3. One of the conditions in maximizing consumer satisfaction is when

A. marginal utility per ringgit for all the goods are equal.
B. marginal revenue per ringgit for all the goods are equal.
C. marginal cost per ringgit for all the goods are equal.
D. marginal producer per ringgit for all the goods are equal.

4. Which of the following contradiction to the law of diminishing marginal utility?

A. Ken enjoys his 30th orange juice of the evening more than his first.
B. Joan finds that the effort associated with preparing for a date exceeds the
enjoyment gained.
C. Howard has a decreasing desire for more wealth the richer he becomes.
D. Natasha must work increasingly hard to cast extra steel ingots.

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This question paper consists of 14 questions in 4 printed pages.
Section A (Continued)

5. In the long run

A. the average fixed cost curve is U- shaped.

B. the average fixed cost exceeds the average variable cost of production.
C. all cost are variable.
D. all cost are fixed.

6. When the marginal cost lies below average variable cost curve

A. average variable cost is decreasing.

B. average variable cost is increasing.
C. average variable cost does not change.
D. average fixed cost is increasing.

7. In the short run, a perfectly competitive firm can earn:

A. positive economic profits.

B. zero economic profits.
C. negative economic profits.
D. All of the above.

8. If a firm produces in the short run, the output where marginal revenue ________
is where profits are maximized.

A. is less than marginal cost

B. is equal to marginal cost
C. exceeds marginal cost by the greatest amount
D. is at its maximum

9. The law of diminishing marginal returns implies that, in the short run:
A. output must fall beyond a certain point.
B. price must fall beyond a certain point.
C. the marginal product of the variable input must eventually decrease.
D. total cost must fall beyond a certain point.

10. Which of the following is not a characteristic of a perfectly competitive market?

A. There is a large number of small firms.
B. Firms sell a homogeneous product.
C. Firms can easily enter or exit the market.
D. Firms are price makers, not price takers.

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This question paper consists of 14 questions in 4 printed pages.
Section B: Structured Questions

Q1. Price (RM)

75
S1

30
25
e1
21
Price Ceiling

0 100 150 D1 Quantity (Units)

Figure 1.1: Market for Text Book

(a) Figure 1.1 shows the demand and supply curve for text book. Use figure
1.1 to answer the following questions:

(i) Determine the area of consumer surplus and producer surplus at

equilibrium (e1). (4 marks)

CS = ½ * (75 -25) * 150√

= RM3750√

PS = ½ * (25 - 0) * 150√
= RM1875√

(ii) Determine the area of consumer surplus, producer surplus and

deadweight loss with implementation of price ceiling. (6 marks)

CS = [½ * (75 - 30) * 100] + [(30 – 21) * 100]√

= RM3150√

PS = ½ * (21 - 0) * 100√
= RM1050√

DWL = ½ * (30 – 21) * (150 – 100)√

= RM225√
[Total: 10 marks]

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This question paper consists of 14 questions in 4 printed pages.
Section B (Continued).

Q2. Sally allocates her budget per day for Pita wraps (RM5 each), Fruits (RM1 each)
and Bubble tea (RM4 each) as shown in table below. Use the following table on
Total utility (TU) to answer the questions below.

Pita wrap Fruits Bubble Tea

Q TU MU MU/ Q T MU MU/ Q T MU MU/
P U P U P
1 21 21 4.2 1 7 7 (d) 1 14 14 3.5
2 41 (a) 4 2 13 6 6 2 30 16 4
3 59 18 3.6 3 18 (c) 5 3 42 12 3
4 74 15 (b) 4 22 4 4 4 50 (e) 2
5 84 10 2 5 24 2 2 5 55 5 (f)

(i) Identify the value of marginal utility and marginal utility per dollar

from (a) to (f). (3 marks)

(a) 20√ (d) 7√

(b) 3√ (e) 8√
(c) 5√ (f) 1.25√ (1/2 marks each)

(ii) List down the possible combinations on the above goods that may
satisfy Sally’s level of satisfactions. (2 marks)

- 2 pita wrap + 4 Fruits + 2 Bubble Tea√

- 5 pita wrap + 5 Fruits + 4 Bubble Tea√

(iii) Choose the best combination of the above goods that will
maximize Sally’s level of satisfaction if the budget allocated is
RM46.00. (3 marks)

5 pita wrap + 5 Fruits + 4 Bubble Tea√

5 (RM5) + 5 (RM1) + 4 (RM4) = RM46.00√√

(iv) Calculate Sally’s Total Utility (TU) at the best combination of the
above goods. (2 mark)

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This question paper consists of 14 questions in 4 printed pages.
 TU = 84 + 24 + 50 = 150 Utils√√
[Total: 10 marks]

Section B (Continued).

Q3. Michael, a chef at Lemon Garden Restaurant, earns RM250, 000 yearly plans to
quit his job to startup his own restaurant. He surrendered his investment policy
worth of RM150, 000 that earns 25% interest annually to buy cooking
equipments. Besides that, he has to allocate RM100, 000 yearly to pay his
labours, RM24,000 yearly for outlet rental, and RM100, 000 yearly for cooking
ingredients from his total revenue of RM600, 000.
Based on above information, calculate:

(i) Accounting cost (2 marks)

Acc Cost = RM100,000 + RM24,000 + RM100,000√

= RM224,000√

(ii) Economic cost (2 marks)

Eco Cost = RM224,000 + (RM250,000 + RM37,500)√

= RM511,500√

(iii) Accounting profit (3 marks)

Acc π = RM600,000 – RM224,000√√

= RM376,000√

(iv) Economic profit (3 marks)

Eco π = RM600,000 – (RM224,000 + RM287,500)√√

= RM88,500√
[Total: 10 marks]

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This question paper consists of 14 questions in 4 printed pages.
________________________________________________________________________
This question paper consists of 14 questions in 4 printed pages.