Question 1:

(a) Sketch the following curves and provide an explanation for their shape

(i) the marginal cost curve

(ii) the average cost curve

(iii) the average fixed cost curve

(iv) the average variable cost curve

(b) Why does the marginal cost curve intersect the average cost curve at its minimum point?

(c) Why does the minimum point of the AVC curve occur at a lower level of output than the minimum point the AC curve?

Question 2: Medicines are often cited as examples of goods which are very price inelastic.

(a) Explain why this might be the case.

(b) Draw a demand curve illustrating price inelastic demand and explain how the curve relates to the definition of price elasticity of demand.

(c) Use the diagram to explain how inelastic demand has implications for pharmaceutical company price setting and revenue.

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'.

(b) Illustrate with a diagram and explain the short-run and long run perfectively competitive equilibrium.

(c) Illustrate with a diagram and explain the short run and long-run monopolistic competitive equilibrium.

(d) Why are firms in the perfectly competitive market structure regarded as more efficient?

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.

Question 5:

Petrol prices recently plummeted; discuss some of the reasons behind this development.