Answer any TWO of the three questions in this section in the ANSWER BOOK. QUESTION 2: MICROECONOMICS 2.1 Answer the following questions. 2.1.1 Name TWO examples of implicit costs 2.1.2 Why does the marginal revenue curve of a monopoly lie below its average revenue curve?

Here are the answers to your questions:

2.1 Answer the following questions.

2.1.1 Name TWO examples of implicit costs.

• The opportunity cost of the owner's time spent working in the business.
• The foregone rent on a building owned by the firm and used for its operations.

2.1.2 Why does the marginal revenue curve of a monopoly lie below its average revenue curve?
A monopolist faces a downward-sloping demand curve, which is also its average revenue curve. To sell an additional unit, the monopolist must lower the price for all units sold, not just the last one. This means the revenue gained from selling one more unit (marginal revenue) is always less than the price at which all units are sold (average revenue).

2.2 Study the data below and answer the questions that follow.

2.2.1 Identify the variable costs of producing 2 units of output.
The variable costs of producing 2 units of output are 5.

2.2.2 Name the cost of production that cannot be recovered.
The cost of production that cannot be recovered is a sunk cost.

2.2.3 Briefly describe the term production costs.
Production costs are the total expenses incurred by a firm to produce goods or services. These costs include both fixed costs (which do not change with output) and variable costs (which change with output).

2.2.4 Explain the impact of producing the fifth unit of output on the average variable costs curve.