Question 1

Which of the following best describes the short run in microeconomic production theory?

Accepted Answer

At least one input is fixed.

Question 2

Suppose the production function is $$q = 3L + 1K$$, where $$w is $$the wage and $$r is $$the rental rate of capital. What is the long-run cost function $$C(q)$$?

Accepted Answer

$$C(q) = (w/3)q if$$ $$(w/3) \leq (r/1)$$, and $$(r/1)q$$ otherwise.

Question 3

A firm claims it can charge lower prices than competitors because it bought its land 50 years ago at a low price. From a short-run perspective, is this claim valid?

Accepted Answer

False because land is a fixed cost in the short run.

Question 4

Suppose the government subsidizes 25% of the wage for workers. For a given output, how will this affect the firm's input choices?

Accepted Answer

More labor and less capital because the marginal product of the last dollar spent on labor is greater than that of capital.

Question 5

Which of the following is NOT an example of a good with network externalities?

Accepted Answer

Wheat.

Question 6

Suppose the market for residential solar panels is described by $$Q_D = 200 - 4P$$ and $$Q_S = 20 + 2P. $$What is the equilibrium price $$P^*$$ and quantity $$Q^*$$?

Accepted Answer

$$P^* = 30, Q^* = 80$$

Question 7

Kayla's utility function is $$U = q_1$ q_2$, with income Y = 1800$, p_1$ = 10$$, and $$p_2 = 20$. What is her optimal bundle $$($$q_1$$^*, $$q_2$$^*)$$?

Accepted Answer

$$(q_1$^*, q_2$^*) = (90, 45)$$

Question 8

Suppose the inverse demand for a good is $$P(Q) = 100 - 2Q$$ and marginal cost is $$MC = 20. $$What is the long-run competitive equilibrium price $$P^*$$ and quantity $$Q^*$$?

Accepted Answer

Question 9

A firm has the production function $$q = (L$$^{1/3}$$ + K$$^{1/3}$$)^3$. What are the returns to scale for this function?

Accepted Answer

Constant returns to scale.

Question 10

Suppose three neighbors must vote on a traffic light costing $$210$$, shared equally. Their valuations are $$50$$, $$50$$, and $$200. $$Will the light be purchased under majority rule, and is it efficient?

Accepted Answer

No, the light is not purchased but it is efficient to do so.

Question 11

In the context of externalities, which of the following is necessary for Coasian bargaining to achieve the social optimum?

Accepted Answer

All of the above.

Question 12

If a monopsony faces a horizontal supply curve, can it profitably set its price below the competitive level?

Accepted Answer

It cannot set price below the competitive level because the marginal expenditure curve will be horizontal and equal to the supply curve.

Question 13

Suppose the government imposes an emissions fee to correct for an externality in a competitive market where $$MC_p = 10 + Q$$ and $$MC_e = Q. $$What is the optimal emissions fee?

Accepted Answer

$$t = 50$$

Question 14

Kayla's utility function is $$U = q_1$ q_2$. What is her uncompensated (Marshallian) demand function for gasoline (q_1$)?

Accepted Answer

$$q_1$$ = \frac{Y}{2p_1}$$

Question 15

A monopoly is unlikely to be profitable in the long run when:

Accepted Answer

Its average total cost curve is above the demand curve.

Question 16

Which of the following best describes the implications of a deadweight loss?

Accepted Answer

Economic resources are not being allocated efficiently: either too much or not enough of the good is being produced.

Question 17

Suppose Kayla's income is $$Y$$, and the price of bread is $$p_2. $$What is her Engel curve for bread?

Accepted Answer

$$Y = 2p_2 q_2$

Question 18

Which of the following conditions could make large sunk costs a barrier to entry?

Accepted Answer

When business success is uncertain or capital markets do not work well.

Question 19

The government prefers an ad valorem tax to a specific tax that reduces monopoly output by the same amount because:

Accepted Answer

The ad valorem tax transfers more revenue from the monopoly to the government.

ENVECON 100 Practice Final – Microeconomics Study Guidance

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