SECTION A [40 MARKS]

Answer ALL questions in this section.

QUESTION 1 (10 Marks)

Provide definitions for the following terms.

1.1 Monopoly (2 marks)

1.2 Variable cost (2 marks)

1.3 Average product (2 marks)

1.4 Opportunity cost (2 marks)

1.5 Substitutes (2 marks)

QUESTION 2 (10 Marks)

Match Column A with Column B. Write down the question number and the correct letter next to it. E.g. 2.6 F

COLUMN A COLUMN B

2.1 Monopolistic competition A There are no fixed inputs - all the inputs are variable.

2.2 Long-run B Earns normal profits in the long-run

2.3 Marginal product C When price equals minimum average variable cost.

2.4 Shut-down point D Opportunity costs not reflected in monetary payments of factors of

production

2.5 Implicit costs E This is the change to the total output resulting from the employment of one

more unit of a variable factor

F A firm can expand output only by increasing the quantity of its variable

inputs.

G Refers to a market structure where firms are so few that each firm must

consider the others' actions and reactions