Microeconomics Answers

QUESTION 1

Perfect competition and monopoly are:

1. Virtually identical market structures.
2. Both strictly outlawed by the SEC.
3. At opposite ends of the competition spectrum.
4. At one end of the competition spectrum with oligopoly at the other extreme.
5. Both located somewhere between oligopoly and monopolistic competition on the competition spectrum.

QUESTION 2

Monopolistically competitive markets feature a large number of competing firms:

1. Each producing identical products.
2. But the products they sell are not identical.
3. But not as many firms as in an oligopoly.
4. But fewer firms than in a monopoly.
5. All of the above.

QUESTION 3

Most markets that consumers encounter at the retail level:

1. Cannot be described by a market structure.
2. Fall firmly within the realm of a monopoly.
3. Are perfectly competitive.
4. Are monopolistically competitive.
5. Are oligopolies. 

A college student has two options for meals: eating at the dining hall for BDT 6 per

meal, or eating a Star Kabab for BDT 1.50 per meal. Her weekly food budget is BDT

60.

a. Draw the budget constraint showing the trade-off between dining hall meals and Star

Kabab. Assuming that she spends equal amounts on both goods, draw an indifference

curve showing the optimum choice. Label the optimum as point A.

b. Suppose the price of a Star Kabab now rises to BDT 2. Using your diagram from part

(a), show the consequences of this change in price. Assume that our student now spends

only 30 percent of her income on dining hall meals. Label the new optimum as point B.

c. What happened to the quantity of Star Kabab consumed as a result of this price change?

What does this result say about the income and substitution effects? Explain.

d. Use points A and B to draw a demand curve for Star Kabab. What is this type of good

called?

With reference to the indifference theory with good Y on the vertical axis and good X on the

horizontal axis, graphically illustrate a change in consumer equilibrium due to a change in

income. Suppose that income has increased.

7.1.2. Explain the concept of diminishing returns in short-run production. (2)

TP = (K̇,L)

where TP = Total production

K = Capital

L = Labour

Using marginal utility theory, how will uncertainty affect people

Use the income elasticity of demand to distinguish between a normal good and an inferior

good. In your explanation, provide the correct elasticity coefficient for each product and the

relationship between income and quantity demanded.

Using marginal utility theory, how will uncertainty affect people’s behavior?

what is opportunity cost?

Perfect competition occurs when none of the individual market participants (buyers and sellers) can influence the price of the product. Under perfect competition, marginal revenue (MR) and average revenue (AR) are thus both equal to the market price.

The situation in which a firm makes an economic profit is identified as one of the possible short-run positions of a firm under perfect competition. Illustrate the given short-run position and explain the situation with reference to your graph.

For the following market demand curve:

A. Find marginal buyer’s WTP at Q = 15.

B. Find CS for P = $35.

C. Suppose P decreases to $10. How much will CS increase due to…

● Buyers who enter the market

● Existing buyers paying lower price.