Q: Suppose a firm’s total cost function is $$TC = 50 + 10Q. $$What is the average total cost (ATC) when $$Q = 5$$?

$$ATC = \frac{50 + 10 \times 5}{5} = 20$$

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 government report states: 'Increasing the minimum wage will reduce poverty.' This statement is an example of:

Accepted Answer

Normative economics, because it prescribes what should be.

Question 3

Suppose a student is deciding whether to spend an extra hour studying for an exam or working at a part-time job. If the student earns $15 per hour at the job, what is the opportunity cost of spending the extra hour studying?

Accepted Answer

The $15 the student could have earned at the job.

Question 4

Which of the following best illustrates the difference between microeconomics and macroeconomics?

Accepted Answer

Microeconomics studies individual markets, while macroeconomics studies the economy as a whole.

Question 5

A market is in equilibrium when:

Accepted Answer

The quantity demanded equals the quantity supplied.

Question 6

If the price of a substitute good increases, what is likely to happen to the demand for the original good?

Accepted Answer

Demand for the original good will increase.

Question 7

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

Accepted Answer

$$Q_d$$ decreases by 10 units.

Question 8

Which of the following statements best describes the law of diminishing returns?

Accepted Answer

As more units of a variable input are added to a fixed input, the additional output from each new unit eventually decreases.

Question 9

A consumer faces a budget constraint given by $$P_x X + P_y Y = I. If $$the price of good $$X$$ increases, what happens to the budget constraint line?

Accepted Answer

It rotates inward, reducing the maximum amount of $$X$$ that can be purchased.

Question 10

If the price elasticity of demand for a product is $$|E_d| = 2$$, what does this imply about consumer responsiveness?

Accepted Answer

Consumers are highly responsive to price changes; demand is elastic.

Question 11

Suppose a firm’s total cost function is $$TC = 50 + 10Q. $$What is the average total cost (ATC) when $$Q = 5$$?

Accepted Answer

$$ATC = \frac{50 + 10 	imes 5}{5} = 20$$

Question 12

If a market experiences a shortage, which of the following is true?

Accepted Answer

Quantity demanded exceeds quantity supplied.

Question 13

A consumer’s equilibrium condition is met when:

Accepted Answer

The marginal utility per dollar spent is equal across all goods.

Question 14

Which of the following best describes the scientific method in economics?

Accepted Answer

Developing models, collecting data, and testing hypotheses empirically.

Question 15

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

Accepted Answer

The goods are substitutes.

Question 16

Suppose a consumer’s budget is $$I = 100$$, the price of good $$A is$$ $$P_A = 10$$, and the price of good $$B is$$ $$P_B = 20. $$What is the maximum quantity of $$A$$ the consumer can buy if they buy no $$B$$?

Accepted Answer

$$\frac{100}{10} = 10$$

Question 17

If a firm’s average variable cost (AVC) is $$AVC = \frac{VC}{Q}$$ and the variable cost (VC) is $$VC = 60$$ when output $$Q = 4$$, what is $$AVC$$?

Accepted Answer

$$AVC = \frac{60}{4} = 15$$

Question 18

Which of the following is a common misconception about causation and correlation?

Accepted Answer

Correlation always implies causation.

Question 19

If the price of a normal good increases, what happens to consumer surplus?

Accepted Answer

Consumer surplus decreases.

Question 20

Suppose the market supply curve shifts to the right due to technological innovation. What is the likely effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Principles of Microeconomics: Midterm 1 Study Guide

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