A1 MOCK EXAM PRACTICE Part 2
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The total income earned from selling a certain number of units of a good or service.
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Revenue
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Costs that change as output changes
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Variable costs
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Answer is B The TR is for a perfectly competitive market. Hence MR=AR=P
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TRUE OR FALSE AFC do not change as output changes
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FALSE The gradually fall as output increases
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TRUE OR FALSE If AC is rising, then it means that TC will be rising at a faster rate.
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TRUE This will cause AC to rise.
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Answer C Where MC=MR At output OG
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TRUE OR FALSE When AC begins to rise, the proportion of AC accounted for by AVC will fall.
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FALSE The proportion of AC allocated to AVC will increase as output increases and the amount of AC allocated to AFC will fall.
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Answer is D AC - AVC (£40-£35=£5) AFC X Q = TFC £5 X 10 = £50
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Answer is B The refinery company (tertiary sector) is merging with a crude oil extraction firm (primary sector)
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Fixed costs are costs that do not change. They are paid by the firm at zero output. Therefore £45 000 is the firm's fixed cost. TC at output of 3000 is £360 000. Therefore TVC= £315 000 AFC = 315 000/ 3000 AFC = £105
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Answer is B Price is fixed. Therefore MR=AR=P MC= MR at output OK
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Answer D The law of diminishing marginal returns
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Answer is C. The proportion of AC dedicated to AVC rises as that of AFC falls.
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Name the tax being imposed on this product?
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Ad Valorem. The tax paid increases as the value of the good increases
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Lorem ipsum dolor sit amet, elit, raesent , tiam in purus semper velit maximus feugiat sit amet in ipsum
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How much tax revenue does this tax generate?
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At the new equilibrium, the tax charged for output 10 is 100. (200 - 100) Therefore the tax revenue generated is 100 x 10= £1000
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Calculate the incidence of the tax borne by producers. Calculate the incidence of the tax borne by consumers
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The amount of tax borne by the producers (the bottom rectangle is £70 (price) X 10 (output) = £700 The incidence of the tax borne by the consumers (the top rectangle is £30 X (10) output = £300
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aNSWER IS C
Find new equilibrium (L) and go to Y axis where P3 represents the price paid by consumers. Go back to L and then go up to the original supply curve (J) then across to P1. P1 is the price the firms receive because of the subsidy. The entire rectangle is the cost of the subsidy.
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What area represents additional producer's surplus? What area represents the additional consumer surplus? What area represents the DWL of the subsidy?
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Additional producer surplus is P2P1JK Additional consumer surplus P2P3KL DWL is JKL
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The misallocation of resources defines a...
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Market failure
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The consumption of cigarettes is believed to be too high witrh serious health risks attached.
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