Question 1

Which of the following best describes an indifference curve as shown in the images above?

Accepted Answer

A curve that shows all combinations of two goods that provide the consumer with the same level of utility.

Question 2

Refer to the budget constraint graph (Image 4). If Dave's income doubles, what happens to his budget constraint?

Accepted Answer

The budget constraint shifts outward, parallel to the original constraint.

Question 3

Suppose the price of pizza increases while the price of Coke and Dave's income remain unchanged. What happens to the slope of Dave's budget constraint?

Accepted Answer

The budget constraint becomes steeper.

Question 4

At the optimal consumption point, what is true about the slopes of the indifference curve and the budget constraint?

Accepted Answer

The slope of the indifference curve equals the slope of the budget constraint.

Question 5

If a perfectly competitive firm is maximizing profit, which condition must be satisfied?

Accepted Answer

$$MR = MC$$

Question 6

Refer to the cost curves in Image 8. If the market price is above the average total cost at the profit-maximizing output, what is the firm's economic profit?

Accepted Answer

Positive

Question 7

In the short run, when should a perfectly competitive firm shut down production?

Accepted Answer

When $$P \u003c AVC$$

Question 8

If a monopolistically competitive firm is earning short-run profits, what will happen in the long run?

Accepted Answer

New firms will enter, shifting the demand curve left until profits are zero.

Question 9

Which of the following is true about the demand curve faced by a perfectly competitive firm?

Accepted Answer

It is perfectly elastic (horizontal) at the market price.

Question 10

Given the cost curves in Image 13, what is the minimum price at which the firm will continue to produce in the short run?

Accepted Answer

The minimum point of the AVC curve.

Question 11

If a monopolist wants to maximize profit, which rule should it follow?

Accepted Answer

Produce where $$MR = MC$$

Question 12

Which of the following best explains why indifference curves cannot cross?

Accepted Answer

It would violate the assumption of transitive preferences.

Question 13

Suppose a firm in a perfectly competitive market is experiencing losses but $$P \u003e AVC. $$What should the firm do in the short run?

Accepted Answer

Continue producing at the output where $$P = MC$$

Question 14

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Many firms selling differentiated products with low barriers to entry.

Question 15

If the marginal utility per dollar spent on pizza is greater than that for Coke, what should the consumer do to maximize utility?

Accepted Answer

Buy more pizza and less Coke.

Question 16

Which equation correctly expresses the profit-maximizing condition for a consumer choosing between pizza and Coke?

Accepted Answer

$$\frac{MU_{pizza}}{P_{pizza}} = \frac{MU_{coke}}{P_{coke}}$$

Question 17

Which of the following best describes economies of scale?

Accepted Answer

Long-run average costs decrease as output increases.

Question 18

If a firm’s total cost is $$TC = FC + VC$$, and $$FC = 100$$, $$VC = 50Q$$, what is the average total cost when $$Q = 10$$?

Accepted Answer

$$ATC = \frac{TC}{Q} = \frac{100 + 50 	imes 10}{10} = 51$$

Question 19

Which of the following is true about the long-run equilibrium in a perfectly competitive market?

Accepted Answer

Firms earn zero economic profit.

Microeconomics Study Notes: Consumer Choice, Production, and Market Structures

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