Reinforcement, Revision and Extension Worksheets

A1 MOCK EXAM PRACTICEPart 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

Costs that change as output changes

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Variable costs

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Answer is BThe TR is for a perfectly competitive market. Hence MR=AR=P

TRUE OR FALSEAFC do not change as output changes

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FALSEThe gradually fall as output increases

TRUE OR FALSEIf AC is rising, then it means that TC will be rising at a faster rate.

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TRUEThis will cause AC to rise.

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Answer CWhere MC=MRAt output OG

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TRUE OR FALSEWhen AC begins to rise, the proportion of AC accounted for by AVC will fall.

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FALSEThe 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 DAC - AVC (£40-£35=£5) AFC X Q = TFC£5 X 10 = £50

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Answer is BThe 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 000AFC = 315 000/ 3000AFC = £105

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Answer is BPrice is fixed. Therefore MR=AR=PMC= MR at output OK

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Answer DThe 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.

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

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) = £700The incidence of the tax borne by the consumers (the top rectangle is £30 X (10) output = £300

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aNSWER IS C

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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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Lorem ipsum dolor sit amet

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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 P2P1JKAdditional consumer surplus P2P3KLDWL is JKL

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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