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36. The cross elasticity of demand for a complementary product would most likely be:

A. zero.
B. positive.
C. negative.

Answer: C
“Elasticity”, Michael Parkin 2009 Modular Level I, Volume 2, pp. 19-20, 27
Study Session 4-13-a
Calculate and interpret the elasticities of demand (price elasticity, cross elasticity, income elasticity) and the elasticity of supply, and discuss the factors that influence each measure.
The cross elasticity of demand is negative for a complement and positive for a substitute.

37. The return to entrepreneurial ability in a firm that makes a positive economic profit is most likely:

A. normal.
B. less than normal.
C. greater than normal.

Answer: C
“Organizing Production”, Michael Parkin 2009 Modular Level I, Volume 2, p. 98
Study Session 4-16-a
Explain the types of opportunity cost and their relation to economic profit, and calculate economic profit.
The return to entrepreneurial ability is greater than normal in a firm that makes a positive economic profit.

38. The belief that money wage rates are sticky is least likely to be associated with:

A. classical macroeconomics.
B. monetarist macroeconomics.
C. Keynesian macroeconomics.

Answer: A
“Aggregate Supply and Aggregate Demand,” Michael Parkin 2009 Modular Level I, Volume 2, pp. 334-337
Study Session 5-23-d
Compare and contrast the classical, Keynesian, and monetarist schools of macroeconomics.
Both Keynesians and monetarists believe that money wage rates are sticky. Classical macroeconomics does not.

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33. If mangoes cost India Rupees (INR) 10 each, a consumer spends his budget on fruits that he values more highly than mangoes. However, at a price of INR 4 per mango the consumer buys 20 mangoes. The total consumer surplus (in INR) is closest to:

A. 26.
B. 60.
C. 120.

Answer: B
“Efficiency and Equity”, Michael Parkin 2009 Modular Level I, Volume 2, pp. 40-41
Study Session 4-14-b
Distinguish between the price and the value of a product and explain the demand curve and consumer surplus.
The consumer surplus is the value of the good minus the price paid for it (10-4) = 6, summed over the quantity bought. The total consumer surplus is the consumer surplus on each mango that the consumer buys and added together. It is the area of the right triangle = (base x height) / 2 as in Fig.2 on p. 40, with base equal to 20 mangoes a week and the height equal to 6, the consumer surplus on each mango. Thus the total consumer surplus = (20 x 6) / 2 = INR
60 (see example on p.40).

34. The best characterization of a firm that is operating on its long-run average cost curve is when it:

A. experiences constant returns to scale.
B. produces a given output at the least possible cost.
C. chooses a plant size that minimizes the average fixed cost.

Answer: B
“Output and Costs”, Michael Parkin 2009 Modular Level I, Volume 2, pp. 142-143
Study Session 4-17-d
Explain the firm’s production function, its properties of diminishing returns and diminishing marginal product of capital, the relation between short-run and long-run costs, and how economies and diseconomies of scale affect long-run costs.
The long-run average cost curve tells the firm the plant size and the quantity of labor to use at each output to minimize cost. Once the plant size is chosen, the firm operates on the shortrun cost curves that apply to that plant size. Therefore, the firm is said to be operating on its long-run average cost curve when it is producing a given output at the least possible cost.

35. As the quantity of labor increases, which of the following is the most likely outcome with respect to the marginal revenue product (MRP) of labor?

A. MRP increases for a monopoly.
B. MRP decreases for a firm in perfect competition.
C. MRP increases for both monopoly and a firm in perfect competition.

Answer: B
“Markets for Factors of Production”, Michael Parkin 2009 Modular Level I, Volume 2, pp. 255-257
Study Session 5-21-a
Explain why demand for the factors of production is called derived demand, differentiate between marginal revenue and marginal revenue product (MRP), and describe how the MRP determines the demand for labor and the wage rate.
MRP decreases for a firm in perfect competition, due to a decline in marginal product.