9708A. 6 February

1. A consumer spends all of their income on two goods, Y and X, and is at position E. The price of X falls and the price of Y remains constant.
The graph shows indifference curves and budget lines which are used to determine the price,
income and substitution effects that are related to this price change.

Which distance gives the income effect of this price change?
A X1X2 B X1X4 C X2X4 D X5X6

2. What defines average variable cost?
A total cost divided by the quantity of the variable factor employed
B total variable cost divided by the quantity of the variable factor employed
C total variable cost divided by the output produced
D the addition to total variable cost by producing one more unit of output

3. What cannot be changed in the short run?
A the level of stock held by firms
B the level of technology available
C the market price of goods
D the output of individual firms in an industry

4. The market structure of an industry changed from being an oligopoly to monopolistic competition.
What is most likely to have increased?
A an individual firm’s ability to influence the market price
B an individual firm’s degree of interdependence in the market
C the concentration ratio in the market
D the number of firms in the market

5. A firm has total production cost of $200 000. Its average fixed cost is $120 and its average
variable cost is $80.
What are the firm’s total fixed costs?
A $12 000 B $40 000 C $80 000 D $120 000


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