Q: A firm’s total cost is given by $$TC = FC + VC$$, where $$FC is $$fixed cost and $$VC is $$variable cost. If $$FC = 100$$ and $$VC = 5q$$, what is the average total cost when $$q = 10$$?

$$ATC = \frac{100 + 5 \times 10}{10} = 15$$

Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative foregone when making a decision.

Question 2

A market is said to be in equilibrium when:

Accepted Answer

Quantity supplied equals quantity demanded at the market price.

Question 3

Suppose the price of coffee increases. According to the law of demand, what happens to the quantity demanded of coffee?

Accepted Answer

It decreases.

Question 4

If a consumer's budget constraint is given by $$I = p_x x + p_y y$$, where $$I is $$income, $$p_x$$ and $$p_y$$ are prices, and $$x$$ and $$y$$ are quantities, what does the slope of the budget line represent?

Accepted Answer

The opportunity cost of good $$x in $$terms of good $$y.$$

Question 5

Which of the following is an example of a positive statement in economics?

Accepted Answer

"Increasing the minimum wage will lead to higher unemployment among teenagers."

Question 6

A firm experiences economies of scale when:

Accepted Answer

Average total cost decreases as output increases.

Question 7

If the price elasticity of demand for a product is $$-2$$, what does this imply?

Accepted Answer

Demand is elastic; a 1% increase in price leads to a 2% decrease in quantity demanded.

Question 8

Suppose a natural experiment occurs when a city unexpectedly bans plastic bags. Which microeconomic concept does this best illustrate?

Accepted Answer

Empirical evidence from a natural experiment.

Question 9

If the cross-price elasticity of demand between two goods is positive, what does this indicate?

Accepted Answer

The goods are substitutes.

Question 10

A firm’s total cost is given by $$TC = FC + VC$$, where $$FC is $$fixed cost and $$VC is $$variable cost. If $$FC = 100$$ and $$VC = 5q$$, what is the average total cost when $$q = 10$$?

Accepted Answer

$$ATC = \frac{100 + 5 	imes 10}{10} = 15$$

Question 11

Which of the following would cause a movement along the supply curve for wheat?

Accepted Answer

A decrease in the price of wheat.

Question 12

If a consumer maximizes utility by equating marginal benefit per dollar across goods, which equation must hold for two goods $$x$$ and $$y$$?

Accepted Answer

$$\frac{MB_x}{p_x} = \frac{MB_y}{p_y}$$

Question 13

Suppose the demand for a product is given by $$Q_d = 100 - 2P. If $$the price increases from $$20 to$$ $$25$$, what is the change in quantity demanded?

Accepted Answer

Decrease by 10 units.

Question 14

Which of the following is NOT a shifter of the demand curve for cars?

Accepted Answer

A change in the price of cars.

Question 15

If a firm faces a perfectly competitive market, which statement is true?

Accepted Answer

The firm is a price-taker and must accept the market price.

Question 16

If the government sets a price ceiling below the equilibrium price, what is the likely outcome?

Accepted Answer

Excess demand.

Question 17

Which of the following best illustrates the law of diminishing returns?

Accepted Answer

Adding more workers to a fixed amount of capital eventually leads to smaller increases in output.

Question 18

If the income elasticity of demand for organic food is $$1.5$$, what does this imply?

Accepted Answer

Organic food is a normal good and a luxury.

Question 19

Suppose a firm’s marginal cost is given by $$MC = 2q$$, and its marginal revenue is $$MR = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$q = 10$$

Question 20

Which of the following is an example of reverse causality?

Accepted Answer

Assuming that higher education causes higher income, when in fact higher income may allow for more education.

Principles of Microeconomics: Exam 1 Study Guide (Chapters 1-6)

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