Business Microeconomics

Assignment Questions
Business Microeconomics
Answer all five (5) of the following questions. Each question is worth 10 marks.
Question 1:
(a) Sketch the following curves and provide an explanation for their shape
(i) the marginal cost curve (1mark)
(ii) the average cost curve (1mark)
(iii) the average fixed cost curve (1 mark)
(iv) the average variable cost curve (1 mark)
(b) Why does the marginal cost curve intersect the average cost curve at its minimum point?
(3 marks)
(c) Why does the minimum point of the AVC curve occur at a lower level of output than the
minimum point the AC curve? (3 marks).
Question 2
Medicines are often cited as examples of goods which are very price inelastic.
(a) Explain why this might be the case. (4 marks)
(b) Draw a demand curve illustrating price inelastic demand and explain how the
curve relates to the definition of price elasticity of demand. (4 marks)
(c) Use the diagram to explain how inelastic demand has implications for
pharmaceutical company price setting and revenue. (2 marks)
Question 3
(a) Discuss the following statement: ‘In the real world there is no industry which conforms
precisely to the economist’s model of perfect competition. This means that the model is
of little practical value’. (2 marks)
(b) Illustrate with a diagram and explain the short-run and long run perfectively competitive
equilibrium. (3 marks)
(c) Illustrate with a diagram and explain the short run and long-run monopolistic competitive
equilibrium. ( 3 marks)
(d) Why are firms in the perfectly competitive market structure regarded as more efficient?
( 2 marks)
Question 4
“A monopolist will charge the highest price the market will bear” Discuss if this statement is
true or false with the aid of diagrams. (7 marks for explanation, 3 marks for diagram).
Question 5
Petrol prices recently plummeted; discuss some of the reasons behind this development.
(10 marks)

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