Question 1

Suppose the demand for a product is given by $$Q_d = 100 - 2P$$, and the supply is $$Q_s = 20 + 3P. $$What is the equilibrium price?

Accepted Answer

Question 2

A consumer faces the budget constraint $$P_x Q_x + P_y Q_y = I$$ and chooses $$Q_x$$ and $$Q_y to $$maximize utility. If $$MU_x / MU_y = P_x / P_y$$, what does this condition represent?

Accepted Answer

The consumer is maximizing utility at an interior solution

Question 3

If the price of good $$X$$ increases, which of the following best describes the substitution effect for a normal good?

Accepted Answer

The consumer buys less of good $$X$$ and more of good $$Y$$

Question 4

Given a Cobb-Douglas production function $$Q = K$$^{0.5}$$ L$$^{0.5}$$, what is the marginal product of labor ($$MPL$$)?

Accepted Answer

$$MPL = 0.5 K$$^{0.5}$$ L$$^{-0.5}$$

Question 5

Suppose a consumer’s utility function is $$U(x, y) = x$$^{0.6}$$ y$$^{0.4}$$ and prices are P_x = 2$, P_y = 1$, with income I = 12$. What is the optimal quantity of x$?

Accepted Answer

$$x = 3.6$$

Question 6

If a firm’s total cost function is $$TC(Q) = 100 + 5Q + Q^2$, what is the marginal cost (MC$) at Q = 10$?

Accepted Answer

$$MC = 25$$

Question 7

Which of the following statements about returns to scale is correct for a production function $$Q = K$$^{0.7}$$ L$$^{0.5}$$?

Accepted Answer

The production function exhibits decreasing returns to scale

Question 8

A consumer’s indifference curve is tangent to the budget line at a point where $$MU_x / MU_y = P_x / P_y. $$What does this imply about the consumer’s choice?

Accepted Answer

The consumer is at an optimal interior solution

Question 9

If the demand curve for a good is $$Q = 50 - 2P$$, what is the price elasticity of demand at $$P = 10$$?

Accepted Answer

$$-0.4$$

Question 10

Suppose a government imposes a per-unit tax $$t on a $$good. Which of the following best describes the effect on the supply curve?

Accepted Answer

The supply curve shifts up by $$t$$ units

Question 11

For a utility function $$U(x, y) = x + y$$, what type of goods are $$x$$ and $$y$$?

Accepted Answer

Perfect substitutes

Question 12

If a consumer’s budget constraint is $$2x + 3y = 12$$, what is the slope of the budget line?

Accepted Answer

$$-3/2$$

Question 13

A firm’s marginal cost curve intersects its average cost curve at the minimum of the average cost curve. Why does this occur?

Accepted Answer

Because average cost is minimized when marginal cost equals average cost

Question 14

If the price of good $$Y$$ falls, what happens to the consumer’s budget constraint?

Accepted Answer

It rotates outward along the $$y-$$axis

Question 15

Suppose a consumer’s utility function is $$U(x, y) = \min(x, y). $$What is the optimal consumption bundle if $$P_x = 1$$, $$P_y = 2$$, and $$I = 12$$?

Accepted Answer

$$(x, y) = (6, 3)$$

Question 16

If a firm’s production function is $$Q = K$$^{0.4}$$ L$$^{0.6}$$, what is the sum of the exponents and what does it imply about returns to scale?

Accepted Answer

Sum is $$1$$, implying constant returns to scale

Question 17

Which of the following best describes the income effect when the price of a normal good falls?

Accepted Answer

The consumer feels richer and buys more of the good

Question 18

If the marginal rate of technical substitution (MRTS) is $$MPL/MPK$$, what does a higher MRTS imply about the firm’s input choices?

Accepted Answer

The firm can substitute labor for capital at a higher rate

Question 19

Suppose the demand for tickets to a concert is perfectly inelastic. If the price increases, what happens to the quantity demanded?

Accepted Answer

Quantity demanded remains unchanged

Microeconomics Exam 1 Study Guide: Supply & Demand, Consumer Choice, and Production Theory

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