MICROECONOMICS

Q1) If the firm’s average cost curves are U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve?

Q2) Distinguish between economies of scale and economies of scope. Why can one be present without the other?

Q3) A chair manufacturer hires its assembly-line labor for $30 an hour and calculates that the rental cost of its machinery is $15 per hour. Suppose that a chair can be produced using 4 hours of labor or machinery in any combination. If the firm is currently using 3 hours of labor for each hour of machine time, is it minimizing its costs of production? If so, why? If not, how can it improve the situation? Graphically illustrate the isoquant and the two isocost lines for the current combination of labor and capital and for the optimal combination of labor and capital.

Q4) If a firm enjoys economies of scale up to a certain output level, and cost then increases proportionately with output, what can you say about the shape of the long run average cost curve?

Q5) What are the average fixed cost, average variable cost and average cost of a firm? How are they related

Q6) Define supply and demand. List their determinants.

Q7) What is the equilibrium price and equilibrium quantity ? If the actual price in the market were above the equilibrium price, what would drive the market toward the equilibrium? If the actual price in this market is below the equilibrium price, what would drive the market toward the equilibrium?

Q8) What is likely to happen to the quantity supplied of a particular cut of meat when its price rises? Express your answer as a general hypothesis of the relationship between the price and the quantity supplied of any commodity.

Q9) Distinguish between the short-run rationing function and the long-run guiding function of price.