Question 1

Suppose the price of corn increases due to a drought in Albion. Which of the following is the most likely effect on the market for wheat in Albion, assuming corn and wheat are substitutes?

Accepted Answer

The demand for wheat will increase, shifting the demand curve for wheat to the right.

Question 2

A firm faces the following cost structure: Total Cost $$= FC + VC = AC 	imes Q. If $$the firm produces 100 units, has fixed costs of $$200$$, and average cost of $$5$$ per unit, what is the variable cost?

Accepted Answer

$$VC = 300$$

Question 3

Which of the following best describes the principle of diminishing marginal product?

Accepted Answer

As more of an input is added, marginal product of the input eventually decreases.

Question 4

Given the linear demand function $$Q = 20 - 2P$$, what is the price elasticity of demand at $$P = 5$$?

Accepted Answer

$$-1$$

Question 5

A monopolist faces the following demand curve: $$P = 10 - Q. $$Its marginal cost is constant at $$MC = 2. $$What quantity will the monopolist produce to maximize profit?

Accepted Answer

$$Q = 8$$

Question 6

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Products are differentiated.

Question 7

Suppose a firm’s marginal cost ($$MC) is$$ $$4$$ and its marginal revenue ($$MR) is$$ $$6 at $$the current output level. What should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 8

If the price elasticity of demand for a product is $$-0.8$$, what will happen to total revenue if the firm increases the price?

Accepted Answer

Total revenue will increase.

Question 9

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

Accepted Answer

The value of the next best alternative forgone.

Question 10

A firm in perfect competition is making zero economic profit. Which of the following must be true?

Accepted Answer

$$P = AC = MC$$

Question 11

Suppose the government imposes a tax on a good, shifting the supply curve upward by the amount of the tax. What is the effect on consumer surplus?

Accepted Answer

Consumer surplus decreases.

Question 12

Which of the following is a public good?

Accepted Answer

National defense.

Question 13

In the context of externalities, what does $$MSC \u003e MPC$$ indicate?

Accepted Answer

There is a negative externality and the good is overproduced.

Question 14

Which of the following is true about Nash Equilibrium in a game?

Accepted Answer

No player can improve their payoff by unilaterally changing their strategy.

Question 15

Suppose a monopolistically competitive firm is in long-run equilibrium. Which of the following must be true?

Accepted Answer

$$P = AC$$

Question 16

If a firm’s total revenue ($$TR) is$$ $$500$$ and its total cost ($$TC) is$$ $$400$$, what is its economic profit?

Accepted Answer

$$100$$

Question 17

Which of the following is most likely to result in a tragedy of the commons?

Accepted Answer

Rival, non-excludable resources.

Question 18

A consumer’s optimal purchase rule is to buy the quantity where:

Accepted Answer

$$MU = P$$

Question 19

If the present value of $$100$$ received in $$2$$ years at an interest rate of $$5\% is $$calculated, which formula should be used?

Accepted Answer

$$PV = 100 \div (1 + 0.05)^2$

Question 20

Which of the following is a likely effect of a binding price ceiling set below equilibrium price?

Accepted Answer

A shortage of the good.

Microeconomics Final Exam Study Guide: Core Concepts, Models, and Applications (Chapters 1-15)

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