Bafb1023 Microeconomics (Open Book Test)

ANSWER BOOKLET
MATRIC NO MC230522649
PROGRAMME Bachelor in Business Administration
COURSE CODE BAFB1023
COURSE TITLE Microeconomics
SEMESTER 1
SECTION MC-O14
DATE 7/2/2023
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Section/Question Marks Marks
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1 a), b), c), d
2 b, c
3. d) e)
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Microeconomics (BAFB1023) CONFIDENTIAL
Final Examination May 2023
Matric No:
Answers:
Question 1
a): When the temperature rises due to hot weather in Malaysia. The demand, of air conditioner increases.
b); The demand of E-vape decreases.
c): The demand of chicken increases
d). The demand of tacos increases.
Question 2
a):
b) Answer: False: Total product will also increase when marginal product decreases and when marginal
product decreases, the total product increases at diminishing rate.
(C: Economists include all opportunity costs when analysing a firm, whereas accountants measure only
explicit costs. Therefore, economic profit is smaller than accounting profit. The formula for accounting
profit = Total income – Explicit expenses. Therefore, Economic profit = Total income – (Explicit expense +
Implicit expense). Economic profits are characterised as the net benefits procured by the firm in the wake
of diminishing both implicit and explicit costs like opportunity costs from the total income acquired by the
organisation. Economic profit is similar to accounting profit. It subtracts explicit costs from total revenue;
however, it also factors in implicit costs, which are the costs of business’s resources. economists subtract
both explicit cost and total implicit cost from the total revenue. By doing this, economists are subtracting
the opportunity cost from the total revenue. This is because opportunity cost includes everything the firm
has to forgo to produce goods. So, this includes both outlays of money explicit costs and costs that do
not require an outlay of money (implicit costs). Since opportunity cost includes everything, the firm
forgoes, economists say that opportunity cost includes all implicit and explicit monetary and non-
monetary costs.
Question 3
d)
Characteristics of Monopolistic Competition
Page 2 of 4
Matric No:
1. A large number of firms: In this type of imperfect market, several firms compete for a market
share with no single firm monopolizing the market.
2. Product differentiation: In monopolistic competition, each firm produces goods or services

that are close substitutes for the goods or services produced by other firms. Competitive firms
differentiate their similar products with distinct marketing strategies, brand names, and slightly
different quality levels. Product differentiation enables firms to command higher prices for lower
quantities of goods.
3. Low barriers to entry: In a monopolistic market, new firms have low barriers to enter the
market. Entrants can also exit the market with relative ease.
4. Pricing: Existing firms within this type of imperfect competition act as price makers and set
prices for goods and services. Firms in monopolistic competition can lower prices without
inciting a price war, a common problem in oligopolies. When marginal revenue equals marginal
cost, firms in a monopolistic market achieve profit maximization. As more firms enter a market,
the elasticity of the demand curve increases, making the quantities of a product sold more
responsive to a price change.
Examples of Monopolistic Competition
1. Grocery stores: Grocery stores exist within a monopolistic market as there are a large
number of firms that sell many of the same goods but with distinct branding and marketing.
2). Hotels: Hotels offer a prime example of monopolistic competition. Each hotel company offers
a similar service with slight variations in pricing and quality levels.
3). Clothing stores: Another example of a large number of firms competing for market share,
general clothing stores offer differentiated products that are typically very similar.
e): Yes, I do Agree. suppliers and buyers seek out a company's competition if they are able to offer a
better deal or lower prices. Conversely, when competitive rivalry is low, a company has greater power
to charge higher prices and set the terms of deals to achieve higher sales and profits. Rivalry is high
when there are a lot of competitors that are roughly equal in size and power, when the industry is
growing slowly and when consumers can easily switch to a competitor offering for little cost. A good
indicator of competitive rivalry is the concentration ratio of an industry. The lower this ration, the more
intense rivalry will probably be. When rivalry is high, competitors are likely to actively engage in
advertising and price wars, which can hurt a business’s bottom line. In addition, rivalry will be more
intense when barriers to exit are high, forcing companies to remain in the industry even though profit
margins are declining. These barriers to exit can include long-term loan agreements and high fixed costs.
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Matric No:
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ANSWER BOOKLET

Fill in the information required below.

Write down in the boxes below the questions attempted in sequence.

Compulsory to For examiner’s use For external

b); The demand of E-vape decreases.

c): The demand of chicken increases

d). The demand of tacos increases.

Characteristics of Monopolistic Competition

2. Product differentiation: In monopolistic competition, each firm produces goods or services

Examples of Monopolistic Competition

* END OF ANSWER SHEET *

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