Indian Institute of Technology Bombay

Department of Economics
EC 101: Economics [D3 Division]
Academic Year: 2019-20 [Autumn Semester] Date: 22/9/2023
Max. Marks: 35 Mid-Term Examination Time: 18.30-20.30 Hrs.

Name:_____________________
Roll No.:___________________

Q.I. Multiple Choice Questions. Mark the Best Choice. [20×1=20 Marks]
1. The average total cost when 5 units of output are produced is Rs. 30, and the marginal cost of the
sixth unit of output is Rs. 60. What is the average total cost when six units are produced?
a. Rs. 10 c. Rs. 30
b. Rs. 25 d. Rs. 35

Refer to Table 1 for questions 2&3

Table 1
Output 0 10 20 30 40 50
Total Cost 40 60 90 130 180 240
2. Refer to Table 1. What is average fixed cost when output is 40 units?
a. Rs. 1.00 c. Rs. 5.00
b. Rs. 3.32 d. Rs. 8.00

3. Refer to Table 1. What is average variable cost when output is 50 units?

a. Rs. 3.60 c. Rs. 4.40
b. Rs. 4.00 d. Rs. 4.80

4. The marginal product of labor (MPL) curve reaches its maximum point:
a. after the average product of labor (APL) curve.
b. at the same quantity of labor as the average product of labor (APL) curve.
c. before the average product of labor (APL) curve.
d. None of the above; the MPL never reaches a maximum.
5. Joe's Garage operates in a perfectly competitive market. At the point where marginal cost equals
marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation,
a. Joe's Garage is earning a positive economic profit.
b. Joe's Garage should shut down immediately.
c. Joe's is losing money in the short run, but should continue to operate.
d. the market price will rise in the short run to increase profits.

6. A tax on a good
a. raises the price that buyers effectively pay and raises the price that sellers effectively receive.
b. raises the price that buyers effectively pay and lowers the price that sellers effectively
receive.
c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive.
d. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.
7. If goods X and Y are perfect complements, then if the price of good Y falls, changes in the amount of
goods X and Y purchased are due

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 a. strictly to the substitution effect. c. to both the income and substitution effects
b. strictly to the income effect. d. strictly to the complement effect.

8. Consumer surplus is equal to the

a. Value to buyers − Amount paid by c. Value to buyers − Costs of sellers.
buyers. d. Value to buyers − Willingness to pay of buyers.
b. Amount paid by buyers − Costs of sellers.

9. If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the
individual farmer's elasticity of demand
a. will also be -0.3. c. will range between -0.3 and -1.0.
b. depends on production level. d. will be infinite.

10. For a monopoly, the level of output at which marginal revenue equals zero is also the level of output
at which
a. average revenue is zero. c. total revenue is maximized.
b. profit is maximized. d. marginal cost is zero.

11. Diseconomies of scale occur when

a. average fixed costs are falling.
b. average fixed costs are constant.
c. long-run average total costs rise as output increases.
d. long-run average total costs fall as output increases.

12. Suppose for some firm that average total cost is minimized at Q1 units of output. For a
monopolistically competitive firm in long-run equilibrium, Q1
(i)is also the level of output at which marginal cost equals average total cost.
(ii) exceeds the level of output at which there is a point of tangency between the demand curve and the average
total cost curve.
(iii) exceeds the level of output at which marginal revenue equals marginal cost.

a. (i) and (ii) c. (i), (ii) and (iii)

b. (ii) and (iii) d. (i) and (iii)

13. Which of the following statements does not apply to a market economy?
a. Firms decide whom to hire and what to produce.
b. No one is looking out for the economic well-being of society as a whole.
c. Households decide which firms to work for and what to buy with their incomes.
d. Government policies are the primary forces that guide the decisions of firms and households.

14. If the demand for a good or service decreases, producer surplus

a. increases. c. remains the same.
b. decreases. d. may increase, decrease or remain same.

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15. Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an
average cost of production equal to Rs. 5, and is earning Rs. 240 economic profit in the short run.
What is the current market price?
a. Rs. 9
b. Rs. 10
c. Rs. 11
d. Rs. 12

16. For an economist, the idea of making assumptions is regarded generally as a

a. bad idea, since doing so leads to the omission of important ideas and variables from economic
models.
b. bad idea, since doing so invariably leads to data-collection problems.
c. good idea, since doing so helps to simplify the complex world and make it easier to understand.
d. good idea, since economic analysis without assumptions leads to complicated results that the general
public finds hard to understand.
17. When a price floor is binding, the equilibrium price is
a. lower than the price floor.
b. higher than the price floor.
c. equal to the price floor.
d. It is impossible to compare the equilibrium price with the price floor.

18. The laws governing patents and copyrights

a. can lead to monopolies.
b. are intended to serve private interests, not the public interest.
c. have costs, but no benefits.
d. eliminate the need for firms to engage in research and development.

Table 2 for questions 19 and 20

B
Right Left
Up (2, 2) (3, 1)
A
Down (1, 3) (0, 0)

19. Refer to Table 2. This table shows a game played between two players, A and B. The payoffs in the
table are shown as (Payoff to A, Payoff to B). Which of the following statements about this game is
true?
a. Down is a dominant strategy for A and Left is a dominant strategy for B.
b. Up is a dominant strategy for A and Left is a dominant strategy for B.
c. Down is a dominant strategy for A and Right is a dominant strategy for B.
d. Up is a dominant strategy for A and Right is a dominant strategy for B.

20. Refer to Table 2. This table shows a game played between two players, A and B. The payoffs in the
table are shown as (Payoff to A, Payoff to B). Which outcome is the Nash equilibrium in this game?
a. Up-Left c. Down-Right
b. Up-Right d. Down-Left

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