Question 1

Which equation best represents the opportunity cost of producing more of good X on a Production Possibility Frontier (PPF)?

Accepted Answer

$$OC_X = -\frac{dY}{dX}$$

Question 2

If a firm’s production function is $$q = K$$^{0.5}$$L^{0.5}$, what type of returns to scale does it exhibit?

Accepted Answer

Constant returns to scale

Question 3

Suppose the price elasticity of demand for a product is $$|e_{q,p}| = 0.5. If $$the price increases, what happens to total revenue?

Accepted Answer

Total revenue increases

Question 4

A firm faces a cost function $$TC = q^2$ + 20q + 100$$ and a market price $$P = 100. $$What is the profit-maximizing output?

Accepted Answer

$$q = 40$$

Question 5

Which formula gives the Marginal Rate of Technical Substitution (MRTS) between labor and capital?

Accepted Answer

$$MRTS = \frac{MP_L}{MP_K}$$

Question 6

If the marginal cost (MC) is less than the average cost (AC), what happens to AC as output increases?

Accepted Answer

AC decreases

Question 7

Which of the following is a sunk cost?

Accepted Answer

A non-refundable deposit paid for a machine last year

Question 8

In the Edgeworth Box, a point is Pareto Efficient if:

Accepted Answer

The MRS for both consumers is equal

Question 9

A firm minimizes its costs when:

Accepted Answer

$$MRTS = \frac{w}{v}$$

Question 10

If a 10% increase in all inputs results in a 10% increase in output, the firm is experiencing:

Accepted Answer

Constant returns to scale

Question 11

Which equation represents the cost minimization rule for a firm using labor and capital?

Accepted Answer

$$\frac{MP_L}{w} = \frac{MP_K}{v}$$

Question 12

If the cross-price elasticity between Good X and Good Y is $$-2$$, what is the relationship between the goods?

Accepted Answer

They are complements

Question 13

Which formula gives the price elasticity of demand at a point?

Accepted Answer

$$e_{q,p} = \frac{dQ}{dP} \cdot \frac{P}{Q}$$

Question 14

A competitive firm’s short-run supply curve is:

Accepted Answer

Its MC curve above the minimum AVC

Question 15

If a firm increases labor by 1 unit and output rises from 50 to 65 units (holding capital constant), what is the marginal product of labor ($$MP_L$$)?

Accepted Answer

$$MP_L = 15$$

Question 16

Which equation represents the total cost for a firm using labor and capital?

Accepted Answer

$$TC = wL + vK$$

Question 17

If the price of labor ($$w) $$increases, what happens to the slope of the isocost line?

Accepted Answer

It becomes steeper

Question 18

Which formula represents the average cost (AC) for a firm?

Accepted Answer

$$AC = \frac{TC}{q}$$

Question 19

In welfare economics, social efficiency is maximized when:

Accepted Answer

The sum of consumer and producer surplus is at its highest

Question 20

Which equation represents the profit ($$\pi) $$for a firm?

Accepted Answer

$$\pi = TR - TC$$

Microeconomics Exam 2 Comprehensive Study Guide

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