Question 1

Which of the following best describes the opportunity cost in microeconomics?

Accepted Answer

The value of the best foregone alternative when making a decision.

Question 2

Suppose a consumer faces the following budget constraint: $$p_x x + p_y y \leq I. If $$the price of good $$x$$ increases, what is the most likely effect on the consumer's optimal choice?

Accepted Answer

The consumer will buy less of good $$x$$ and possibly more of good $$y$$, depending on preferences.

Question 3

A firm’s production function is $$q = F(K, L). If $$both capital ($$K) $$and labor ($$L) $$are doubled and output more than doubles, what type of returns to scale does the firm exhibit?

Accepted Answer

Increasing returns to scale

Question 4

In a perfectly competitive market, firms are price takers. Which condition must be met for a firm to maximize profit in the short run?

Accepted Answer

Set $$P = MC$$

Question 5

If a government imposes a per-unit tax on a good, the burden of the tax falls more heavily on the side of the market that is:

Accepted Answer

Less elastic

Question 6

A monopolist faces the following demand curve: $$P = 100 - Q. $$Its marginal cost is constant at $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

40

Question 7

Which of the following is NOT a source of monopoly power?

Accepted Answer

Perfect information

Question 8

In the context of externalities, what is the socially efficient outcome for a negative externality in production?

Accepted Answer

Where $$MSB = MSC$$

Question 9

According to the Coase theorem, efficiency can be achieved in the presence of externalities if:

Accepted Answer

Property rights are assigned and transaction costs are zero.

Question 10

In a Cournot duopoly, each firm chooses its output to maximize profit given the output of the other. What is the key assumption about the goods produced?

Accepted Answer

The goods are homogenous.

Question 11

A Nash equilibrium in game theory is best described as:

Accepted Answer

A set of strategies where each player maximizes their payoff given the strategies of others.

Question 12

Suppose a public good is non-rival and non-excludable. What is the most likely market outcome?

Accepted Answer

The good will be under-provided due to free-riding.

Question 13

In the principal-agent problem with moral hazard, which constraint ensures the agent prefers the desired level of effort?

Accepted Answer

Incentive compatibility (IC)

Question 14

In the context of adverse selection, what happens when buyers cannot distinguish between high and low quality goods?

Accepted Answer

Low quality goods dominate the market, potentially causing market collapse.

Question 15

If a project has a net present value (NPV) calculated as $$NPV = \sum_{t=0}^{n} \frac{CF_t}{(1+r)^t}$$, what does a positive NPV indicate?

Accepted Answer

The project is worth undertaking as benefits exceed costs.

Question 16

Which of the following best explains why cartels in Bertrand competition are unstable?

Accepted Answer

Firms have an incentive to undercut the cartel price for higher profits.

Question 17

A consumer’s demand curve for a good is $$Q = 10 - P. $$What is the consumer’s willingness to pay for the 3rd unit?

Accepted Answer

$$P = 7$$

Question 18

Which policy is most effective at internalizing a negative externality in production?

Accepted Answer

A Pigovian tax equal to the external cost per unit.

Question 19

In cost-benefit analysis (CBA), which principle is used to determine whether a project should go ahead?

Accepted Answer

Kaldor-Hicks utilitarian principle

Question 20

If a firm’s average total cost ($$ATC) $$decreases as output increases, what is this phenomenon called?

Accepted Answer

Economies of scale

Comprehensive Microeconomics Study Notes: Core Principles, Models, and Applications

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