Question 1

Suppose Jackie can produce 40 bowls of salad or 200 breadsticks, and Erick can produce 50 bowls of salad or 100 breadsticks. Who has the comparative advantage in producing breadsticks?

Accepted Answer

Jackie, because her opportunity cost of breadsticks is lower.

Question 2

If the demand for pillows is given by $$Q_D = 50 - 1.5P$$, and the price of pillows increases from $$10 to$$ $$15$$, what is the price elasticity of demand?

Accepted Answer

$$-0.44$$

Question 3

Suppose the supply and demand for imported cigarettes are $$Q_D = 25 - 1.5P$$ and $$Q_S = 2P. If a$$ $$10$$ tax is imposed on sellers, what is the price buyers pay after the tax?

Accepted Answer

$$18$$

Question 4

Rayford buys coffee and croissants. If coffee costs $$1$$ per cup and croissants cost $$18$$ each, and Rayford has $$12 to $$spend, what is his budget equation?

Accepted Answer

$$1Q_c + 18Q_{cr} = 12$$

Question 5

In a perfectly competitive market, the marginal cost (MC) of producing picture frames is $$MC = 8 + 8Q. $$What is the profit-maximizing output if the market price is $$P = 40$$?

Accepted Answer

$$Q = 4$$

Question 6

If the market demand for picture frames is $$D = 70 - P$$ and the market supply is $$S = 2P$$, what is the equilibrium price and quantity?

Accepted Answer

$$P = 20$$, $$Q = 50$$

Question 7

Suppose the government imposes a $$10$$ tax on imported cigarettes. If the equilibrium quantity before the tax was $$20$$ thousand packs, what is the deadweight loss due to the tax? (Use $$DWL = \frac{1}{2} 	imes (Q^*_{before} - Q^*_{after}) 	imes Tax)$$

Accepted Answer

$$2.25 ($$thousand dollars)

Question 8

If the marginal rate of substitution (MRS) between coffee and croissants is $$0.125$$, what does this value represent?

Accepted Answer

Rayford is willing to give up $$0.125$$ cups of coffee for one more croissant.

Question 9

In a monopoly market for picture frames, if the demand is $$P = 70 - Q$$ and the marginal cost is $$MC = 30$$, what is the monopoly price and quantity?

Accepted Answer

$$Q = 20$$, $$P = 50$$

Question 10

Two airlines are competing on a route. If both set the lower price of $$150$$ per ticket, each earns $$1.5$$ million in profit. If one sets $$200$$ and the other $$150$$, the firm with $$200$$ earns $$1$$ million and the other $$2$$ million. What is the Nash Equilibrium?

Accepted Answer

Both airlines set the lower price of $$150$$

Question 11

If the price of good X increases and the quantity demanded of pillows decreases, what can you infer about the relationship between pillows and good X?

Accepted Answer

Pillows are complements to good X

Question 12

In the context of externalities, if the marginal social cost (MSC) of street cleaning is higher than the marginal private cost (MPC), what does this imply?

Accepted Answer

There is a negative externality from street cleaning

Question 13

If a consumer's indifference curve is tangent to the budget line at a bundle of goods, what does this indicate?

Accepted Answer

The consumer is maximizing utility given their budget constraint

Question 14

Which of the following best describes the concept of 'deadweight loss' in the context of monopoly?

Accepted Answer

The loss in total surplus due to the monopolist producing less than the socially optimal quantity

Question 15

If the income elasticity of demand for pillows is positive, what type of good are pillows?

Accepted Answer

Normal good

Question 16

Suppose the market for street cleaning services has a demand curve $$P = 48 - 3Q$$ and the marginal cost is $$MC = 30. $$What is the socially efficient quantity of street cleaning?

Accepted Answer

$$Q = 6$$

Question 17

In an oligopoly game, what is a dominant strategy?

Accepted Answer

A strategy that is best for a player, regardless of what the other players do

Question 18

If the marginal cost (MC) and marginal social cost (MSC) of street cleaning at $$Q = 8$$ are $$MC = 8 + 8Q$$ and $$MSC = 15 + 7Q$$, what is the value of MSC at $$Q = 8$$?

Accepted Answer

$$MSC = 71$$

Question 19

If the price of good X increases and the demand for pillows increases, what type of good are pillows relative to good X?

Accepted Answer

Substitute good

Microeconomics Final Exam Study Guide: Key Concepts and Practice Problems

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