Basic Economics Study Guide

Ateneo de Manila University
2nd Semester 2013-2014, EC 102 I and C
Reviewer for the 2nd Long Exam
I.
1.

2.
3.
4.
5.
6.
7.
II.

TRUE OR FALSE
In the short-run, the average fixed cost (AFC) curve will be asymptotic to the origin. This simply means that the average fixed cost curve will come closer and closer to zero, but will never be zero. TRUE
Variable costs usually change as the firm alters the quantity of output produced. TRUE
In a perfectly competitive market, firms are unable to differentiate their product from that of other producers. TRUE
Profits for all market structures are maximized when the MR (marginal revenue) is equal to the MC (marginal cost). TRUE
For a firm in a perfectly competitive market, price is always equal to marginal revenue.
TRUE
A monopolistically competitive market is characterized by barriers to entry. FALSE
Cartels normally engage in direct price competition. FALSE
Multiple Choice: Choose the best economic answer.
Questions 1 to 4 refer to the following costs table:
Q
TFC
TVC
TC
AFC

AVC

AC

MC

0
1
2
3
4
5

-10
(k)
9.7
10.5
12

-20
14
13
13
(l)

-10
8
(m)
13
18

(f)
(f)
(f)
(f)
(f)
(f)

0
?
18
?
42
(g)

?
20
(h)
39
?
70

-?
?
?
(j)
?

1. Total Fixed Cost (item f) in the table must be equal to
a) 5

b) 8

c) 9

d) 10

2. Items (g) and (h), respectively, must be equal to
a) 60 and 28

b) 60 and 24

c) 80 and 32

d) 48 and 24

3. Items (j) and (k), respectively, must be equal to
a) 3 and 10

b) 10 and 12

c) 5 and 8

d) 2.5 and 9

4. Items (l) and (m) respectively must be equal to
a) 14 and 10

b) 14 and 11

c) 15 and 10

d) 15 and 11

5. One of the defining characteristics of a perfectly competitive market is
a)
a small number of sellers.
b)
a large number of buyers and a small number of sellers
c)
a homogenous product.
d)
significant advertising by firms to promote their products.
For Questions 6