Q: A bakery faces the following costs: $$\200$ in fixed costs and $$\$$2$$ per loaf in variable costs. If the bakery produces $$100$$ loaves, what is the average total cost (ATC) per loaf?

$$ATC = \frac{200 + (2 \times 100)}{100} = \frac{200 + 200}{100} = \frac{400}{100} = 4$$

Question 1

Which of the following best describes the 'economic problem' as discussed in microeconomics?

Accepted Answer

How to allocate scarce resources among unlimited wants.

Question 2

Suppose a new technology reduces the cost of producing electric cars. Using the supply and demand model, what is the most likely effect on the equilibrium price and quantity of electric cars?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Question 3

If the price elasticity of demand for a product is $$-2.5$$, what does this imply about consumer responsiveness?

Accepted Answer

A 1% increase in price leads to a 2.5% decrease in quantity demanded.

Question 4

A bakery faces the following costs: $$\200$ in fixed costs and $$\$$2$$ per loaf in variable costs. If the bakery produces $$100$$ loaves, what is the average total cost (ATC) per loaf?

Accepted Answer

$$ATC = \frac{200 + (2 	imes 100)}{100} = \frac{200 + 200}{100} = \frac{400}{100} = 4$$

Question 5

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

Firms are price takers and sell identical products.

Question 6

A firm in a perfectly competitive market faces a market price of $$\10$ per unit. If the firm's marginal cost (MC) of producing the 50th unit is $$\$$10$$, what should the firm do to maximize profit?

Accepted Answer

Produce the 50th unit, since $$P = MC at $$that quantity.

Question 7

If a monopolistically competitive firm is earning economic profits in the short run, what is likely to happen in the long run?

Accepted Answer

New firms will enter, reducing the firm's demand and eliminating economic profits.

Question 8

Suppose the cross-price elasticity of demand between tea and coffee is $$+0.8. $$What does this indicate about the relationship between tea and coffee?

Accepted Answer

They are substitutes.

Question 9

A firm in an oligopoly faces a kinked demand curve. What is the most likely implication for the firm's pricing behavior?

Accepted Answer

The firm is reluctant to change its price because rivals may not follow price increases but will follow price decreases.

Question 10

If the government imposes a price ceiling below the equilibrium price in the market for rental apartments, what is the most likely outcome?

Accepted Answer

A shortage of rental apartments.

Question 11

Which of the following best illustrates the concept of opportunity cost?

Accepted Answer

A student chooses to attend class instead of working a part-time job, giving up the wages they could have earned.

Question 12

Suppose the demand for a product is given by $$Q_d = 100 - 2P$$ and the supply is $$Q_s = 4P. $$What is the equilibrium price?

Accepted Answer

Set $$Q_d = Q_s$$: $$100 - 2P = 4P \implies 100 = 6P \implies P = \frac{100}{6} \approx 16.67$$

Question 13

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

Accepted Answer

A large number of small firms in the market.

Question 14

If the income elasticity of demand for a good is $$-0.5$$, what type of good is it?

Accepted Answer

An inferior good.

Question 15

A firm’s total cost (TC) function is $$TC = 100 + 5Q + Q^2$. What is the marginal cost (MC) function?

Accepted Answer

$$MC = \frac{dTC}{dQ} = 5 + 2Q$$

Question 16

Which of the following scenarios best demonstrates the concept of comparative advantage?

Accepted Answer

Country A can produce wheat at a lower opportunity cost than Country B, so Country A specializes in wheat and trades with Country B.

Question 17

If a firm in a perfectly competitive market is producing at a level where $$P \u003c AVC$$, what should the firm do in the short run?

Accepted Answer

Shut down production immediately.

Question 18

Which of the following is most likely to increase the price elasticity of demand for a product?

Accepted Answer

The availability of more close substitutes.

Question 19

Suppose a firm in monopolistic competition faces the following demand and cost functions: $$P = 50 - Q$$, $$TC = 10 + 20Q. $$What is the profit-maximizing output?

Accepted Answer

Set $$MR = MC$$. $$TR = P 	imes Q = (50 - Q)Q = 50Q - Q^2$, so MR = 50 - 2Q$. MC = 20$. Set 50 - 2Q = 20$$ \implies 2Q = 30 \implies Q = 15$$

Question 20

Which of the following best describes the effect of a binding minimum wage set above the equilibrium wage in a competitive labor market?

Accepted Answer

It creates a surplus of labor, leading to unemployment.

ECON 201 Principles of Microeconomics: Course Structure and Key Topics

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