Question 1

Suppose Peter's indifference curve has a marginal rate of substitution (MRS) of 3 everywhere. Peter consumes 10 units of Good X and 20 units of Good Y. If Peter increases his consumption of Good X by 1 unit and decreases his consumption of Good Y by 2 units, what happens to his utility?

Accepted Answer

Peter will be indifferent.

Question 2

Richard has a utility function $$U(x, y) = x y. $$What is the equation of Richard’s indifference curve passing through the point $$(1, 2)$$?

Accepted Answer

$$y = 2/x$$

Question 3

Nancy’s marginal rate of substitution is given by $$MRS = y/x. If $$her income $$I = 100$$, $$P_X = 5$$, and $$P_Y = 10$$, what is her consumption of Good Y in the utility maximization market basket?

Accepted Answer

50

Question 4

When a firm doubles both inputs (capital and labor) and produces more than twice the output, the firm exhibits:

Accepted Answer

Increasing returns to scale

Question 5

A competitive farm has the following cost function: $$C(q) = 200 + 5q^2$. What is the supply function of this farm?

Accepted Answer

$$S(p) = 0.1p$$

Question 6

Consider a firm with production function $$F(K, L) = K L. $$Assume capital is fixed at $$K = 1$$, rental rate of capital $$r = 10$$, and wage rate $$w = 3. $$What is the total cost of producing $$q$$ units in the short run?

Accepted Answer

$$C(q) = 10 + 3q$$

Question 7

Refer to the graph showing MC, AC, AVC, and AFC curves for a competitive firm. If the market price is $15, what is the profit-maximizing output?

Accepted Answer

More than 100 but less than 180 units

Question 8

In the rock-paper-scissors game, if the winner receives a payoff of 1 and the loser receives -1, what is the value of K in the payoff matrix?

Accepted Answer

1

Question 9

In a simultaneous-move game, can the outcome (U, R) be Pareto dominated by another feasible outcome given the following payoffs: (U, R): (26, 2), (D, L): (2, 26), (D, R): (22, 22)?

Accepted Answer

Yes

Question 10

In the following simultaneous-move game between Amy and Bob, which statement is correct?

Amy: Zumba, Running
Bob: Zumba, Running
Payoff matrix: (Zumba, Zumba): (10, 8), (Zumba, Running): (2, 2), (Running, Zumba): (0, 0), (Running, Running): (8, 10)

Accepted Answer

Neither player has a dominant strategy

Question 11

In the same game, when Bob plays “Running”, what is Amy’s best response?

Accepted Answer

Amy's only best response is Running.

Question 12

In the same game, what is Amy’s maximin strategy?

Accepted Answer

Both Zumba and Running are Amy's maximin strategies

Question 13

How many Nash equilibria does the Amy-Bob game have (do not consider randomization)?

Accepted Answer

2

Question 14

In the Amy-Bob game, can the equilibrium in maximin strategies be Pareto dominated by another feasible outcome?

Accepted Answer

Yes

Question 15

Consider a sequential-move game where Amy chooses first (Zumba or Running), and Bob observes and chooses. What is the subgame perfect Nash equilibrium payoff vector?

Accepted Answer

(10, 8)

Question 16

In a sequential-move integer game, Marilyn announces 1 or 2 first, Noah follows. If the numbers are different, the lower number pays $1 to the other. If the numbers are the same, both get 0. What is Marilyn’s subgame perfect Nash equilibrium payoff?

Accepted Answer

0

Question 17

In a sequential-move game where Player 2 chooses L, C, or R, and Player 1 chooses U, M, or D after observing Player 2’s action, which vector is the subgame perfect Nash equilibrium payoff vector?

Accepted Answer

(-8, 4)

Question 18

In the Bertrand model, the firms’ total profit level is higher than that in a Cournot model.

Accepted Answer

False

Question 19

Suppose two firms produce crude oil with linear market demand and constant symmetric marginal costs. Which model has the highest deadweight loss?

Accepted Answer

Cartel (monopoly) model

Question 20

Compared to a Cartel (monopoly) model, a Cournot equilibrium has ______ output level and _____ price level.

Accepted Answer

Higher; lower

Microeconomics Practice Exam Guidance

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