Question 1

Suppose a firm faces the following demand curve: $$P(Q) = 30 - 0.5Q. $$The marginal cost of production is constant at $$MC = 10. $$What is the profit-maximizing quantity for this firm if it is a monopolist?

Accepted Answer

$$Q = 20$$

Question 2

If the supply curve for a good is $$Q_s = 2P - 4$$ and the demand curve is $$Q_d = 20 - P$$, what is the equilibrium price?

Accepted Answer

$$P = 8$$

Question 3

A negative externality causes the marginal social cost (MSC) to be higher than the marginal private cost (MPC). Which of the following best describes the market outcome in the presence of a negative externality?

Accepted Answer

The market produces more than the socially optimal quantity.

Question 4

Suppose the marginal product of labor (MPL) for a firm is given by $$MPL = 10 - L$$, where $$L is $$the number of workers. If the wage rate is $$w = 4$$ and the price of output is $$P = 2$$, how many workers will the firm hire to maximize profit?

Accepted Answer

$$L = 8$$

Question 5

Which of the following is an example of a public good?

Accepted Answer

National defense

Question 6

Suppose the demand for a good is perfectly inelastic. If the government imposes a tax on this good, who bears the burden of the tax?

Accepted Answer

Consumers bear the entire burden.

Question 7

If the cross-price elasticity of demand between goods X and Y is $$-0.8$$, what does this imply about the relationship between X and Y?

Accepted Answer

They are complements.

Question 8

A firm in a perfectly competitive market faces a market price of $$P = 15. $$Its marginal cost is $$MC = 15 at$$ $$Q = 100$$ units. What should the firm do to maximize profit?

Accepted Answer

Produce 100 units

Question 9

Suppose the government imposes a price ceiling below the equilibrium price in the market for gasoline. What is the most likely outcome?

Accepted Answer

A shortage of gasoline

Question 10

If the income elasticity of demand for a good is $$1.5$$, what type of good is it?

Accepted Answer

A luxury good

Question 11

Suppose the production possibilities frontier (PPF) for two goods is bowed outward. What does this imply about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 12

A firm’s total cost function is $$TC = 100 + 5Q. $$What is the average total cost (ATC) when $$Q = 10$$?

Accepted Answer

$$ATC = 15$$

Question 13

Which of the following best describes the Nash equilibrium in a simultaneous-move prisoner's dilemma game?

Accepted Answer

Both players choose to defect.

Question 14

Suppose the demand for a product is $$Q = 100 - 2P. If $$the government imposes a per-unit tax of $$10$$, what happens to the equilibrium quantity?

Accepted Answer

It decreases

Question 15

If a country can produce either 10 units of wheat or 20 units of corn with the same resources, what is the opportunity cost of producing 1 unit of wheat?

Accepted Answer

2 units of corn

Question 16

Which of the following is most likely to cause a rightward shift in the demand curve for electric vehicles?

Accepted Answer

An increase in the price of gasoline

Question 17

Suppose the marginal cost (MC) of producing a good is $$MC = 2Q. If $$the market price is $$P = 20$$, what is the profit-maximizing output for a perfectly competitive firm?

Accepted Answer

$$Q = 10$$

Question 18

If a firm’s total revenue is $$TR = 100Q$$ and its total cost is $$TC = 20Q + 200$$, what is the break-even quantity?

Accepted Answer

$$Q = 2.5$$

Question 19

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

Accepted Answer

Firms have market power

Question 20

Suppose the government wants to correct a positive externality. Which of the following policies is most appropriate?

Accepted Answer

Provide a subsidy to consumers

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