FINAL EXAMINATION

Name of Student: ________________________________________________________ Student Number: ________________________________________________________

INSTRUCTIONS: This exam is in two parts. PART A (multiple choice questions) is to be answered on the examination paper itself. PART B should be answered in the exam book provided. Print your name clearly and give your normal signature and student number above and on the cover of the exam book(s) used. PART A: Multiple Choice Questions (30%) 1. Market supply curves tend to be more price elastic if the time period is long rather than short because— a. Firms are better able to adapt their output rates to price changes in the long run. b. External economies will be realized. c. Consumers are better able to find substitute goods. d. Input prices would be expected to increase with the length of the time period. e. Economic profits are reduced to zero in the long run. Marginal product exceeds average product when— a. Total product is increasing. b. Average product is increasing. c. Average product is decreasing. d. a and b. e. a and c. A frequently cited reason for increasing returns to scale is— a. Increased input prices. b. Greater specialization. c. External diseconomies. d. Larger fixed costs with a larger plant size. e. Difficulty of managing a huge enterprise.

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C5, Economic Environment of Business, Final Examination, page 1 of 8

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In determining whether to add an additional flight to an established airline, which of the following costs are irrelevant? a. Depreciation on the existing aircraft. b. The salary of the president. c. Insurance on the aircraft. d. Administrative costs. e. All of the above. If the two assumptions of profit maximization and freedom of entry and exit are satisfied, then in the long run each firm will operate where— a. Price equals short-run and