ECO402 midterm latest solved questions

Here You can read ECO402 midterm 2013 latest solved questions answers for preparation of Mid Term Exam fall 2016.

ECO402 midterm Paper 2013 Sample 1:

Total Questions: 27

Total MCQs of 1 Mark: 22

Total Short Subjective Question of 3 Marks:3

Total Long Subjective Question of 5 Marks:2

  • What are consumer surplus and its benefits?
  • How would the learning curve influence your decision?
  • What is the short-run market supply curve?
  • What does the point show which is above the indifference curve?
  • Which type of probability has been discussed in the scenario subjective or objective?

ECO402 midterm Paper 2013 Sample 2:

what would be condition of profit max. when a firm is working in perfect competition in:
  • marginal cost and marginal revenue
  • total cost and total revenue 
(1.5+1.5=3 marks).

Consumer spends all his income on two goods; food and clothing then:

  • what is the shape of budget line
  • what be the change in budget line when the price of clothing increase from 10 to 20
(show graphically)

(1.5+1.5=3 marks)

Calculate expected value (3 marks)

What other shapes of isoquants are possible, and why, explain graphically.
(1+2+2=5 marks)

A table was given in which some values were to be found..(MP of variable input, total output, average output) (5 marks)

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ECO402 midterm Paper 2013 Sample 3:

3 Question of 3 Marks each:
  1. Differentiate between arc elasticity and point elasticity with formulas.
  2. Differentiate between the slope of budget line and the slope of indifference curve.
  3. A table was given with Price, Quantity and Total Cost and the Revenue cost was supposed to find.
2 Questions of 5 Marks each:
  1. The question was to find the learning curve equation.
  2. Theoretical question about elasticity of demand.
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ECO402 midterm Question no. 1:

Define the Diminshing Marginal Utility & Equi-Marginal Utility.(3)

Diminshing Marginal utility:

A law of economics stating that as a person increases consumption of a product - while keeping consumption of other products constant

Equi-Marginal Utility:

This theory states that a rational consumer spent his total budget between or among the goods he will derived marginal utility from the last money purchased of goods.

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ECO402 midterm Question no. 2:

Define Consumer Surplus and describe its benefits briefly. (3)

Consumer surplus is a measure of the welfare that people gain from the consumption of goods and services, or a measure of the benefits they derive from the exchange of goods.

Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e. the market price for the product). The level of consumer surplus is shown by the area under the demand curve and above the ruling market price as illustrated in the diagram below:

ECO402 midterm Question no. 3:

Describe the followings:

a) Marginal Cost and Marginal Revenues

Marginal cost: The marginal cost of production is the increase in total cost as a result of producing one extra unit.

Marginal Revenues: Marginal revenue is the increase in revenue from selling one more unit of a product. It differs from the price of the product because it takes into account the effect of changes in price.

b) Total Cost and Total Revenues

Total cost: Total cost is an economic term that refers to the sum of all costs, including the fixed costs and variable costs.

Total Revenues: The total amount of a company's sales and other sources of income

Total sales revenue and other revenue for a particularperiod.

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ECO402 midterm Question no. 4:

 When do the economics of scope exits? Spout your answer with the help of Example. How can u measure the degree of economics of scope? Explain with the help of Formula.

Ans: Economies of scale exist when the average cost of producing output falls a the level of output increases.
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ECO402 midterm Question no. 5:

define snob effect and bandwagon effect. + what is NETWORK EXTERNALITIES ? (marks 5)

snob effect: Situation where the demand for a product by a high incomesegment varies inversely with its demand by the lowerincome segment.

bandwagon effect: the phenomenon of a popular trend attracting even greater popularity "in periods of high merger activity there is a bandwagon effect with more and more firms seeking to engage in takeover activity"; "polls are accused of creating a bandwagon effect to benefit their candidate"

othwer deifnation: This is the major objective of marketing and advertising campaigns (e.g. toys,


Network externalities: Up to this point we have assumed that people’s demands for a good are independent of one


If fact, a person’s demand may be affected by the number of other people who have

purchased the good.
If this is the case, a network externality exists.

Network externalities can be positive or negative.

A positive network externality exists if the quantity of a good demanded by a consumer

increases in response to an increase in purchases by other

ECO402 midterm Question no. 6:

A. How do we calculate the user cost of capital?

The User Cost of Capital

User Cost of Capital = Economic Depreciation + (Interest Rate)(Value of Capital)

B. Why isocost lines are straight lines?

The isocost line represents all possible combinations of labor and capital that may be purchased for a given total cost. The slope of the isocost line is the ratio of the input prices of labor and capital. If input prices are fixed, then the ratio of these prices is clearly fixed and the isocost line is straight.

(Marks: 1+2)

ECO402 midterm Question no. 7:

define risk neutral and explain it with graph (3)

Risk Neutral

– A person is said to be risk neutral if they show no preference between a certain

income, and an uncertain one with the same expected value

ECO402 midterm Question no. 8:

define probability.. intrepreting objective and subjective probability...what are main point to measure the risks? (5)

subjective probability: Subjective

• Based on perception or experience with or without an observed frequency

– Different information or different abilities to process the same information can

influence the subjective probability

ECO402 midterm Question no. 9:

Define risk. by how many ways a consumer can reduce risk? marks =3

Three ways consumers attempt to reduce risk are:

1) Diversification

2) Insurance

3) Obtaining more information

ECO402 midterm Question no. 10:

if MC of production > AVC, does this tell you whether the AVC is increasing or decreasing. explain marks=3 marks

With increasing returns, output is increasing relative to input and variable cost and total cost

will fall relative to output.

– Decreasing returns and cost

•With decreasing returns, output is decreasing relative to input and variable cost and total cost

will rise relative to output.

ECO402 midterm Question no. 11:

How can diversification reduce the risk of investing in the stock market? give example. marks

It is almost impossible to predict how the financial markets will perform - if we could predict sudden corrections in the share market or changes in the value of the Australian dollar we'd all be millionaires. But diversifying your investments can help you take advantage of the 'ups' while moderating the 'downs'.

ECO402 midterm Question no. 12:

can an isoquant be other than convex to origin. if yes then which shapes of isoquant are possible and why? mahparanoor: define with diagrams if there any. marks=5


Curves showing all possible combinations of inputs that yield the same output.

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