Q: Which of the following is the correct formula for average elasticity between two points on a demand curve?

$$\frac{\Delta Q}{\Delta P} \times \frac{P_1$ + P_2$}{Q_1$ + Q_2$}$$

Question 1

Suppose the demand for corn in Albion is given by $$Q_D = 200 - 2P$$ and the supply is $$Q_S = -20 + 4P. $$What is the equilibrium price and quantity in this market?

Accepted Answer

Equilibrium price is $$P = 30$$, equilibrium quantity is $$Q = 140$$

Question 2

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

Accepted Answer

The value of the next best alternative foregone when a choice is made

Question 3

If the price elasticity of demand for a product is $$-2$$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will decrease

Question 4

A firm in perfect competition faces a market price of $$P = 10. $$Its average total cost at the profit-maximizing output is $$ATC = 8. $$What is the firm's profit per unit?

Accepted Answer

$$2$$

Question 5

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

Accepted Answer

There are significant barriers to entry

Question 6

Suppose a negative externality exists in the production of steel. Which of the following policies would most directly address the market failure?

Accepted Answer

A per-unit tax equal to the marginal external cost

Question 7

If a monopolist faces a linear demand curve $$P = 100 - Q$$ and has constant marginal cost $$MC = 20$$, what is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 8

Which of the following best explains why public goods are typically underprovided in a free market?

Accepted Answer

They are non-rival and non-excludable, leading to free rider problems

Question 9

A firm’s marginal cost curve intersects its average total cost curve at $$ATC = MC = 15$$ when output is 100 units. If the market price is $$P = 20$$, what is the firm’s profit at this output?

Accepted Answer

$$500$$

Question 10

Which of the following is an example of comparative advantage?

Accepted Answer

A country produces a good at a lower opportunity cost than another country

Question 11

Suppose the cross-price elasticity of demand between two goods is positive. What does this imply about the relationship between the two goods?

Accepted Answer

They are substitutes

Question 12

In the context of game theory, what is a Nash Equilibrium?

Accepted Answer

A situation where no player can improve their payoff by unilaterally changing their strategy

Question 13

If the marginal product of labor is decreasing as more workers are hired, which economic principle is being illustrated?

Accepted Answer

Principle of diminishing marginal returns

Question 14

Suppose a monopolistically competitive firm is earning positive economic profits in the short run. What will happen in the long run?

Accepted Answer

New firms will enter, driving economic profit to zero

Question 15

Which of the following is the correct formula for average elasticity between two points on a demand curve?

Accepted Answer

$$\frac{\Delta Q}{\Delta P} 	imes \frac{P_1$ + P_2$}{Q_1$ + Q_2$}$$

Question 16

A firm’s total cost is given by $$TC = 100 + 5Q + Q^2$. What is the marginal cost when Q = 10$?

Accepted Answer

$$MC = 25$$

Question 17

Which of the following is most likely to result from a binding price ceiling set below equilibrium price?

Accepted Answer

A shortage of the good

Question 18

If a good is non-excludable and non-rival, which type of good is it?

Accepted Answer

Public good

Question 19

Suppose the government imposes a tax on a good with perfectly inelastic demand. Who bears the burden of the tax?

Accepted Answer

Consumers bear all of the tax burden

Question 20

Which of the following is an example of a positive externality?

Accepted Answer

Vaccination reducing disease spread

Microeconomics Final Exam Study Guide: Core Concepts, Models, and Applications

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