Microeconomics Assignment
Semester 1, 2019
Business Economics BUECO5903
Prepared by Paul McPhee
(Course Coordinator)
Checked by David Spiers
(Caretaker / Moderator)
Instructions for Candidates:
1. Choose any five (5) of the following eight (8) questions;
2. Each question is worth ten (10) marks;
3. This assignment comprises 15 per cent of total assessment;
4. Please type your assignment;
5. All diagrams and direct quotations must be referenced as per the course description specified method.
6. Please use the numbering system as provided on this document to identify the questions.
Question 1:
(a) Illustrate and explain using diagrams how a single seller within the market can maintain an inefficient allocation of resources;
(2.5 marks for the diagram plus 2.5 marks for the explanation)
(b) Are there any advantages to a single market seller and how do they compare to its perceived disadvantages.
(2.5 marks for identifying advantages and 2.5 marks for identifying disadvantages)
Question 2:
(a) What market structure is used to benchmark allocative efficiency and why do we use it? Illustrate and explain using a diagram
(2.5 marks for the diagram plus 2.5 marks for the explanation)
(b) Why and how do monopolistically competitive firms fail to achieve allocative efficiency? Illustrate and explain using a diagram.
(2.5 marks for the diagram plus 2.5 marks for the explanation)
Question 3:
(a) Assuming a constant wage rate, illustrate and explain using a diagram, how a firm’s marginal costs of production are at a minimum when its marginal product is at a maximum;
(2.5 marks for the diagram plus 2.5 marks for the explanation)
(b) Illustrate and explain using a diagram how a firm’s long-run average cost curve comes into existence from a multi-plant operation;
(2.0 marks for the diagram plus 2.0 marks for the explanation)
(c) Identify and describe the significance of the various portions of this diagram. (1 mark)
Question 4:
(a) You are examining and reporting on the market performance of a very small number of firms that are known to often collude in setting output prices and quantities. Illustrate and explain using a diagram what affect this behaviour is most likely to have on the allocation of factors of production.
(2.5 marks for the diagram plus 2.5 marks for the explanation)
(b) What will happen if one of these firms cheats on the others in some way? Illustrate and explain using a diagram.
(2.5 marks for the diagram plus 2.5 marks for the explanation)
Question 5:
(a) Illustrate and explain using diagrams, the difference between long run supply in a constant cost individual firm and industry and an increasing cost firm and industry.
(Firm level diagrams 2.5 marks; industry level diagrams 2.5 marks, firm level explanation
2.5 marks, industry level explanation 2.5 diagrams)
Question 6:
Illustrate and explain using diagrams, two (2) market mechanisms that are used for controlling pollution as an externality.
[2.5 marks for each diagram (total of 5 marks) plus 2.5 marks for each explanation (total of 5 marks)]
Question 7:
(a) Explain whether you agree or disagree with the following statement and why:
“Regardless of whether the short run or the long run is being considered, a firm should continue to operate as long as its price is greater than its average variable cost”.
(5 marks)
(b) Use diagrams to illustrate and explain why you agree or disagree with the following statement:
“When marginal revenue equals marginal cost, total cost equals total revenue and the firm makes zero profit”.
(2.5 marks for diagram plus 2.5 marks for explanation)
Question 8:
The following diagram shows the cost curves of a firm under perfect competition.
$

(a) How much will the firm produce in order to maximise profits at a price
of $8 per unit? ....................... (1/2 mark)
(b) What will be its average cost of production at this output? ........................................ (1/2 mark)
(c) How much (supernormal) profit will it make? ............................................................ (2 marks)
(d) How much will the firm produce in order to maximise profits at a price
of $5 per unit? ........................ (1/2 mark)
(e) How much (supernormal) profit will it make? ............................................................ (2 marks)
(f) How much will the firm produce in order to maximise profits at a price
of $4 per unit? ........................ (1/2 mark)
(g) What will be its profit value be now? .......................................................................... (2 marks)
(h) Below what price would the firm shut down in the short run? ..................................... (1 mark)
(i) Below what price would the firm shut down in the long run? ...................................... (1 mark)