Examination question paper: July 2017
Module code:
EC5001
Component number:
003
Module title:
Business Economics
Module leader:
Sue Tootoonchian
Date:
July 2017
Duration:
3 Hours
Exam type:
Part Seen/Part Unseen, Closed
Materials supplied:
None
Materials permitted:
Calculators are permitted
Warning:
Candidates are warned that possession of
unauthorised materials in an examination
is a serious assessment offence.
Instructions to
candidates:
Candidates will be required to answer ALL
questions in Section A, and TWO questions in
Section B.
All questions in Section A carry 12 marks each
with a total of 48 marks. All questions in Sections
B carry 26 marks each with a total of 52 marks.
Do not turn page over until instructed
© London Metropolitan University
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SECTION A
THE SEEN PART OF THE EXAMINATION
SECTION A (Total of 48 marks)
There are FOUR questions. Please answer ALL questions.
Each question carries 12 marks.
Section A:
1. Are the following statements true or false? Explain your answers.
a) If demand is very inelastic relative to supply, the burden of the tax falls
mostly on buyers.
(4 marks)
b) The supply of housing is less elastic in the short run than the long run.
(4 marks)
c) A monopolist will never produce a quantity of output that is on the inelastic
portion of the demand curve (i.e. where the elasticity of demand is less than 1
in absolute value).
(4 marks)
2. Suppose a profit-maximising monopolist is producing 800 units of output
and is charging a price of £40 per unit.
a) If the price elasticity of demand for the product is -2, find the marginal cost
of the last unit produced.
(4 marks)
b) What is the firm’s percentage mark-up of price over marginal cost?
(4 marks)
c) Suppose that the average cost of the last unit produced is £15. Find the
firm’s total profit.
(4 marks)
3. What are some of the different types of barriers to entry that give rise to
monopoly power? Give an example of each.
(12 marks)
4. Draw a budget line and then draw an indifference curve to illustrate the
utility-maximising choice associated with two products. Use your graph to
show what might happen if one of the products is rationed. Explain why the
consumer is likely to be worse off.
(12 marks)
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