Chapter 9+10+11 - Revision Questions

Revision
Practice Questions
2020
CHAPTER 9
THEORY OF PRODUCTION
Task
1. In economics, the short-run is a period of time:

a) Of one year or less
b) In which all inputs are fixed
c) In which all inputs are variable
d) In which the quantity of at least one input is fixed and the quantities of the
other inputs can be varied
2. A firm has fixed costs:
e) In the short run and in the long run.
f) In the short run but not in the long run.
g) In the long run but not in the short run.
h) Neither in the long run nor in the short run.
i) When the price of its product is fixed.
3. Suppose a firm produces 50 units of output per month. The
firm’s average variable costs and average fixed costs per month
are R200 and R500, respectively. What is the firm’s total cost?
a) R700
b) R30 000
c) R10 500
d) R35 000
e) R25 700
4. The following diagram shows a total product curve for a small
firm. Use this diagram to answer the following questions.
At what level of labour inputs do

diminishing marginal returns occur?
a) 10
b) 12
c) 15
d) 30
e) More than 30
b
The point of diminishing returns is the point
on the total product curve where the slope
starts to get shallower. This is known as the
point of inflection. The slope of the total
product curve is the marginal product,
which has reached its maximum at 12 units
of labour.
5. The table below describes the production of bread in the short run.
Each oven used to produce the bread costs R5000. The wage rate is
R225 per week. Using the information in the table, answer the question
1. What is the total cost of

producing 1350 loaves of
bread per week?
a. R900
b. R30 000
c. R30 900
d. R5 400
e. R5 225
6. The following table reports the input cost (in Rands) of
producing different units of output. Complete the table
Output Total Total Total Average Average Average Margin

(Q)/ Fixed Variable Cost Fixed Variable Cost al Cost
Total Cost Cost (TC) Cost Cost (AC or (MC)
Product (TFC) (TVC) (AFC) (AVC) ATC)
(TP)
0 100 ---- ---- ----
10 190
20 170
30 240
40 400
50 100 550
60 600
TEST YOUR KNOWLEDGE
The following table indicated the different quantities of apricot jam which
consumers will demand (and thus a producer will sell) at different prices.
Fill in the table by calculating total revenue, average revenue and
marginal revenue
Total Average Marginal

Price
Quantity Revenue Revenue Income
(Rand)
(Rand) (Rand) (Rand)
20 96 -
18 97
16 98
14 99
12 100
CHAPTER 10
PERFECT COMPETITION
Question 1
Which one of the following is not a characteristic of perfect
competition?
a) Free entry and exit
b) There are a large number of buyers and sellers
c) The government has full control of the market; complete
government intervention
d) Prices are determined by market forces of demand and supply
e) None of the above

Question 2
If marginal revenue is greater than marginal cost:
a) it will pay the firm to expand production.

b) the firm should leave the level of production
unchanged.
c) the firm should cut back on production.
d) profit is at a maximum.
e) only normal profit will be possible.
Question 3
If economic profits are being made in a perfectly competitive
market, then in the long run firms will _____ the market. This
will ______ the extra revenue firms earn for each unit of output
sold, and economic profits will _____.
a) enter; decrease; decrease
b) enter; increase; increase
c) enter; increase; decrease
d) leave; decrease; increase
Question 4
Use the table below which represents the cost and price schedules
facing a perfectly competitive firm that manufactures lampshades and
answer the question.
Quantity of Price per Total Total Marginal Average variable
the product unit revenue profit cost cost
(R) (R) (R) (R) (R)
0 10 0 -10 - -
1 10 10 -9 9 9,00
2 10 20 -5 6 7,50
3 10 30 -3 8 7,67
4 10 40 -3 10 8,25
5 10 50 -6 13 9,20
a) At which output is the firm in equilibrium and should it continue

producing?
Question 5
a) What is the total revenue of the firm at equilibrium?
b) What is the total cost of the firm producing at this point?

At which point on this
graph will the firm have
to shut down?
a) At point C
b) Just above point D
c) Just below point A
d) Just below point B
Question 6
In a perfectly competitive market, the market price is R20. If the last
unit of output that the firm produced cost the firm R18, the firm
would maximise profits if it were to:
a) shut down.
b) expand output.
c) contract output.
d) increase the price of output.
e) leave output unchanged – the firm is currently maximising profits.
Question 7
Normal profit implies that:
a) economic profit is zero.
b) all factors employed are earning an amount equal to their
opportunity costs.
c) firms are earning enough to cover all the costs of production.
d) price must be greater than average variable cost.
e) all of the above are correct.

Question 8
The shut down rule implies that firms should:
a) Cease production if total revenue is not sufficient to cover total cost.
b) Shut down only if total revenue is not sufficient to cover total variable
cost
c) Continue to produce if average revenue is less than average variable cost
d) Cease production if average revenue exceeds average cost
e) Cease production if total revenue is just sufficient to cover total cost.

Question 9
The demand curve facing a perfectly competitive
firm is:
a) unitarily elastic.
b) perfectly elastic.
c) perfectly inelastic.
d) relatively but not perfectly elastic.
e) impossible to specify.
Question 10
The market for milk is characterised as a perfectly competitive
market. However given the high costs and recent drought firms
in the market are experiencing economic losses.
a) By means of graphs indicate what would happen in the long

run in the market for milk?
Question 11
In a perfectly competitive market the price of the product is R10 per unit. A firm
operating in this market has an average variable cost of R8 per unit. The firm’s
average total cost is R11 per unit. In view of this information, the firm:
a) should increase output to maximum profit.
b) should decrease output to minimise loss.
c) should shut down immediately.
d) is earning an economic profit.
e) is making a loss but should not shut down.

Question 12
Match following South African industries into
monopoly, oligopoly and monopolistic
competition.
A Cell phone industry 1 Monopolistically
competitive
B Restaurant industry 2 Perfect competition
C The manufacturer of 3 Oligopoly
fighter planes and artillery
D Fruit and veg market 4 Monopoly

GOOD LUCK

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1. In economics, the short-run is a period of time:

At what level of labour inputs do

1. What is the total cost of

Output Total Total Total Average Average Average Margin

Total Average Marginal

a) Free entry and exit

b) There are a large number of buyers and sellers

c) The government has full control of the market; complete

d) Prices are determined by market forces of demand and supply

e) None of the above

a) it will pay the firm to expand production.

a) At which output is the firm in equilibrium and should it continue

a) What is the total revenue of the firm at equilibrium?

b) What is the total cost of the firm producing at this point?

a) economic profit is zero.

b) all factors employed are earning an amount equal to their

c) firms are earning enough to cover all the costs of production.

d) price must be greater than average variable cost.

e) all of the above are correct.

a) Cease production if total revenue is not sufficient to cover total cost.

c) Continue to produce if average revenue is less than average variable cost

d) Cease production if average revenue exceeds average cost

e) Cease production if total revenue is just sufficient to cover total cost.

a) By means of graphs indicate what would happen in the long

a) should increase output to maximum profit.

b) should decrease output to minimise loss.

c) should shut down immediately.

d) is earning an economic profit.

e) is making a loss but should not shut down.

D Fruit and veg market 4 Monopoly

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