PRACTICE EXAM QUESTIONS

Question 1

a) Describe the characteristics of monopoly.

b) What is the marginal cost of a firm operating in a perfectly competitive market if it charges the price of $15 per unit at the profit maximising output of 5000 units per week?

c) Consider the situation for a firm, at the profit maximising level of output: price is $50, average total cost (ATC) is $55, and average variable cost (AVC) is $45. Should the firm continue operating in the short run? Explain.

d) The diagram below shows demand and cost curves for a firm in a competitive market. Determine the profit maximising level of price, output, total revenue, total cost and total profit for the firm. What is the shut down point for the firm?

Question 2

a) Describe the characteristics of monopolistic competition. Compare monopolistic competition with perfect competition in terms of price and output outcomes.

b) Can a monopolistically competitive firm earn an economic profit in the long-run? Can a monopoly? Explain.

c) What are the barriers to entry and how can a firm benefit from having a barrier to entry.

Question 3

The payoff matrix above shows the profit ($mill.) for the two firms, A and B. If both firms make their decisions independently and focus on their self-interest, the dominant strategy equilibrium is that both firms charge ______ price and each makes ________ profit.

If both firms focus on joint interest, the optimum strategy equilibrium is that both firms charge ______ price and each makes ________ profit.

Question 4

a) Explain who will be the winners and the losers if inflation is lower than anticipated.

a) Describe the cyclical and frictional types of unemployment.

b) Refer to the following table and calculate
• the labour force
• the unemployment rate
• the participation rate

Population 23.0 million
Working Age Population 17.8 million
Employed 10.9 million
Unemployed 0.6 million

Question 5

a) Refer to the following table:
Year GDP deflator Nominal GDP ($billion)
2010 95.5 1,100
2011 100.0 1,300
2012 102.4 1,400
2013 103.6 1,490

• What is the value of real GDP in 2010?
• What is the growth rate between 2010 and 2011?
• What is the change in the nominal GDP between 2011 and 2012?

b) Do you think that GDP is the accurate measure of economic welfare of a country? Explain.

c) What type of products are the most affected by the business cycle? Explain.

Question 6

a) What is the cash rate? What is the MP?

b) Recommend and describe a policy that the RBA should implement if a country faces the inflation.

c) What are the open market operations (OMO) and when would the RBA carry them out? Describe the process and the effect on the AD.

Question 7

a) Consider an economy that experience deep recession. Advise the government on fiscal policy it should implement to solve the problem.

b) What types of fiscal policies are available to the government to solve the problem of recession/inflation? Describe.

c) What is the federal budget? Are there any forces that influence the budget without an implementation of any explicit fiscal policy by the government? Explain.