ECON2410 – Tutorial 1 Questions
Topic 1: Introduction and economics primer
Based on lecture 1 and introductory chapters of Besanko et al. (2012) Economics of strategy,
6th Edition, John Wiley & Sons
A. MCQs
1. A firm’s fixed costs are $54,000, and it sold 350 units at $140 each. The total variable costs
were $35,000. The net income or loss of the firm was __________.
(a) $40,000 loss
(b) $40,000 income
(c) $14,000 income
(d) $9,000 loss

2. The quantity of a good demanded rises from 1000 to 1500 units when the price falls from
$1.50 to $1.00 per unit. The price elasticity of demand for this product is __________.
(a) 0.16
(b) 2.5
(c) 1.5
(d) 4.0

3. A 20% increase in the quantity of pizza demanded results from a 10% decline in its price.
The price elasticity of demand for pizza is __________.
(a) 2
(b) -2
(c) 0.5
(d) -0.5

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4. If you know that with 8 units of output average fixed cost is $12.50 and average variable
cost is $81.25, then total cost at this output is ___________.
(a) $93.75
(b) $97.78
(c) $750
(d) $880

5. What is the minimum efficient scale (MES) of production?

(a) The point on an average cost curve where the cost per unit begins to decline more rapidly.
(b) The minimum point on a U-shaped average cost curve.
(c) The minimum level of production at a plant for it to be considered profitable.
(d) The level of production for a small sized plant.
6. In a competitive industry each seller _________.
(a) is a price taker
(b) produces different products
(c) can influence price
(d) prevents the entry of competitors

7. The reason the marginal cost curve eventually increases as output increases for the typical
firm is because __________.
(a) of diseconomies of scale
(b) of minimum efficient scale
(c) of the law of diminishing return
(d) None of the above



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8. Demand is said to be inelastic when _________.
(a) the percentage change in quantity demanded is greater than the percentage change in price
of a good
(b) the percentage change in quantity demanded is equal to the percentage change in price of a
good
(c) the percentage change in price exceeds the percentage change in quantity demanded of a
good
(d) a relatively small change in price results in a relatively big change in quantity demanded
9. Marginal cost ___________.
(a) is less than average cost when average cost is decreasing
(b) measures how total cost changes when one more unit of output is produced
(c) measures how total cost changes when input prices change
(d) both a and b
10. Suppose a firm sells its product at a price lower than the implicit costs. Which is true?
(a) The firm will earn accounting and economic profits.
(b) The firm will face accounting and economic losses.
(c) The firm will face an accounting loss, but earn economic profits.
(d) The firm may earn accounting profits, but will face economic losses.

11. When total revenues are less than the sum of explicit and implicit costs __________.

(a) accounting profits must be negative
(b) the firm is experiencing an economic loss
(c) normal profits are zero
(d) accounting profits must be positive




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12. If all firms in a perfectly competitive industry earn a normal profit, then ________.

(a) new firms will enter the industry
(b) old firms will exit the industry
(c) the number of firms in the industry is stable
(d) market supply will shift to the right

B. Short answer/problem solving questions

1. The table below gives the demand schedule for snow peas.

(a) Calculate the point price elasticity of demand as you move from point C to point D.
(b) Calculate the point price elasticity of demand as you move from point D to point C.
(c) Calculate the arc price elasticity of demand as you move from point C to point D.
(d) Calculate the arc price elasticity of demand as you move from point D to point C.
(Note: arc elasticity is the midpoint method)

Price (dollars per bushel) Quantity demanded (bushels)
A 10 0
B 8 4
C 6 8
D 4 12
E 2 16

2. The table below shows the per day total cost for a glove company. Each glove is priced
at $50 and the company is a perfectly competitive firm.
Quantity (gloves per day) Total cost (dollars)
0 80
1 100
2 105
3 135
4 170
5 210
6 270
7 350
8 450

(a) At which output level is the company maximises its profit?
(b) Between which two output levels does the company earn an economic profit?