Question 1

Suppose the demand for a product is given by $$Q_d = 100 - 2P$$ and the supply is $$Q_s = 20 + 3P. $$What is the equilibrium price?

Accepted Answer

Question 2

A consumer has a utility function $$U(x, y) = x$$^{0.5}$$y^{0.5}$$ and faces prices $$P_x = 2$$, $$P_y = 1$$, and income $$I = 100. $$What is the optimal bundle $$(x^*, y^*)$?

Accepted Answer

$$(x^*, y^*) = (25, 25)$$

Question 3

If the marginal rate of substitution (MRS) between goods $$X$$ and $$Y is$$ $$MRS = MU_X / MU_Y$$, and the price ratio is $$P_X / P_Y$$, what condition must hold at the consumer's optimum?

Accepted Answer

$$MRS = P_X / P_Y$$

Question 4

Suppose a tax of $$t$$ per unit is imposed on a good. The demand is $$Q_d = 50 - P$$ and the supply is $$Q_s = P - 10. $$What is the new equilibrium quantity after a tax of $$t = 5 is $$imposed?

Accepted Answer

$$Q^* = 15$$

Question 5

A Cobb-Douglas production function is $$Q = K$$^{0.4}$$L^{0.6}$. What type of returns to scale does this technology exhibit?

Accepted Answer

Constant returns to scale

Question 6

If a consumer's budget constraint is $$P_x x + P_y y = I$$ and the optimal bundle is an interior solution, which of the following must be true?

Accepted Answer

$$MU_x / P_x = MU_y / P_y$$

Question 7

Suppose the marginal product of labor (MPL) is $$10$$ and the marginal product of capital (MPK) is $$5. If $$the wage rate $$w = 2$$ and the rental rate of capital $$r = 1$$, is the firm minimizing cost?

Accepted Answer

Yes, because $$MPL/w = MPK/r$$

Question 8

Which of the following best describes the substitution effect when the price of good $$X$$ falls?

Accepted Answer

The consumer buys more of $$X$$ because it is relatively cheaper compared to $$Y$$

Question 9

If the elasticity of demand for a good is $$-0.5$$, what does this imply about consumer responsiveness?

Accepted Answer

Demand is inelastic; consumers are not very responsive to price changes

Question 10

A firm faces the following total cost function: $$TC(Q) = 100 + 10Q + Q^2$. What is the marginal cost (MC) when Q = 5$?

Accepted Answer

$$MC = 20$$

Question 11

Which of the following statements about indifference curves is correct?

Accepted Answer

Indifference curves cannot cross each other

Question 12

If a consumer's utility function is $$U(x, y) = x + y$$, what type of goods are $$x$$ and $$y$$?

Accepted Answer

Perfect substitutes

Question 13

Suppose the price of good $$X$$ increases. Which of the following is most likely to occur for a normal good?

Accepted Answer

Quantity demanded of $$X$$ decreases

Question 14

A production function is $$Q = K$$^{0.3}$$L^{0.3}$. What are the returns to scale?

Accepted Answer

Decreasing returns to scale

Question 15

If the marginal cost (MC) curve passes through the minimum point of the average cost (AC) curve, what does this imply?

Accepted Answer

MC = AC at the minimum of AC

Question 16

Which of the following is a correct interpretation of the marginal rate of technical substitution (MRTS)?

Accepted Answer

The rate at which a firm can substitute labor for capital while keeping output constant

Question 17

If a consumer's optimal bundle is at a corner solution, which of the following is most likely true?

Accepted Answer

The MRS does not equal the price ratio at the boundary

Question 18

Suppose a firm faces a short-run total cost function $$TC(Q) = 50 + 5Q. $$What is the average variable cost (AVC) when $$Q = 10$$?

Accepted Answer

$$AVC = 5$$

Question 19

Which of the following best describes the difference between a movement along a demand curve and a shift of the demand curve?

Accepted Answer

A movement is caused by a change in the good's own price; a shift is caused by a change in another factor such as income

Microeconomics Exam 1 Study Guide: Supply & Demand, Consumer Choice, and Production Theory

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