Question 1

Suppose the price of peanut butter is twice the price of tuna. Using the table provided, at which bundle is Alfred maximizing his utility? (Marginal utility per rand spent should be equalized across goods.)

Accepted Answer

Bundle C

Question 2

Given the isoquant diagram (third image), what does the convex shape of the isoquants imply about the marginal rate of technical substitution (MRTS) between labour and capital?

Accepted Answer

MRTS is diminishing as more labour is used.

Question 3

In the cost curves diagram (fourth image), at what output level does the firm achieve minimum average cost (AC)?

Accepted Answer

At output 34

Question 4

Refer to the long-run and short-run cost curves (fifth image). If the firm expects the market price to be R80 in the long run, what is the profit-maximizing output in the long run?

Accepted Answer

64

Question 5

Which of the following best describes the relationship between the short-run average cost (SAC) and the long-run average cost (LRAC) curves?

Accepted Answer

The LRAC curve is the envelope of the SAC curves.

Question 6

If the marginal cost (MC) curve intersects the average variable cost (AVC) curve at its minimum point, what does this imply about the relationship between MC and AVC at output levels below and above this point?

Accepted Answer

MC is less than AVC below the minimum and greater above.

Question 7

Suppose a firm is operating at a point where its short-run marginal cost (SRMC) is below its long-run marginal cost (LRMC). What does this indicate about the firm's current scale of production?

Accepted Answer

The firm is experiencing economies of scale.

Question 8

If the marginal utility of peanut butter is 0.42 and the marginal utility of tuna is 0.84, and the price of peanut butter is twice the price of tuna, what is the marginal utility per rand spent on each good?

Accepted Answer

$$0.42/2$$ for peanut butter and $$0.84/1$$ for tuna

Question 9

Which of the following statements about isoquants is correct?

Accepted Answer

Isoquants further from the origin represent higher output levels.

Question 10

In the context of the cost curves shown, what does the vertical distance between the average cost (AC) and average variable cost (AVC) curves represent?

Accepted Answer

Average fixed cost

Question 11

If a firm is producing at an output where $$MC = AC$$, what does this imply about the average cost curve at that point?

Accepted Answer

AC is at its minimum.

Question 12

Given the isoquant diagram, if a firm moves from the isoquant labeled 20 to the isoquant labeled 40, what does this represent?

Accepted Answer

A doubling of output

Question 13

If the marginal rate of substitution (MRS) between peanut butter and tuna is 0.5, what does this mean?

Accepted Answer

The consumer is willing to give up 0.5 units of tuna for 1 unit of peanut butter.

Microeconomics ECS2601: Core Study Notes

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