Microeconomics – Worth 20% of total assessment:
Answer all five (5) of the following questions. Each question is worth 10 marks.
Explain and illustrate with diagrams the differences between diminishing marginal returns and decreasing economies of scale and cite causes and examples.
(10 marks – 2.5 marks diagrams, 2.5 marks for explanation, 5 marks for causes / examples)
Suppose the jeans industry is an oligopoly in which each firm sells its own distinctive brand of jeans., and each firm believes its rivals will not follow its price increases but will follow its price cuts.
Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?
(5 marks for the correct demand curve and 5 marks for the correct explanation)
(a) Discuss the following statement: ‘In the real world there is no industry which conforms precisely to the economist’s model of perfect competition. This means that the model is of little practical value’. (2.5 marks)
(b) Illustrate with a diagram and explain the short-run perfectively competitive equilibrium for both (i) the individual firm and (ii) the industry; (2.5 marks for diagram and 2.5 marks for explanation)
(c) Illustrate with a diagram and explain the long-run perfectly competitive equilibrium for the firm
(a) Explain and illustrate using a diagram why a monopolist would never produce in the inelastic range of the demand curve. (3 marks for explanation, 3 marks for diagram)
(b) In each of the following cases, state whether the monopolist would increase or decrease output: (i) Marginal revenue exceeds marginal cost at the...