Question 1

Which of the following best describes the focus of microeconomics?

Accepted Answer

It analyzes the behavior of individual consumers, firms, and industries as they operate in a market economy.

Question 2

Suppose the demand curve for a product is given by $$Q_D = 575 - 5P. $$What is the price at which the quantity demanded is zero?

Accepted Answer

$$P = 115$$

Question 3

If the price elasticity of demand for a product is $$-0.33$$, which of the following statements is true?

Accepted Answer

Demand is inelastic, so a price increase will increase total revenue.

Question 4

A firm faces the following cost structure: Fixed cost = $$500$$, Variable cost = $$1,000$$, Output = $$250. $$What is the average total cost (ATC)?

Accepted Answer

$$ATC = \frac{TC}{Q} = \frac{500 + 1000}{250} = 6$$

Question 5

In a perfectly competitive market, if the market price is $$25$$ and a firm’s marginal cost at the current output is $$20$$, what should the firm do?

Accepted Answer

Increase output, because marginal revenue ($$MR) $$exceeds marginal cost ($$MC).$$

Question 6

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

Accepted Answer

Firms can influence the market price.

Question 7

If the supply curve for a good shifts to the left due to a decrease in the number of producers, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will rise and equilibrium quantity will fall.

Question 8

Suppose the demand curve for a product is $$Q_D = 500 - 5P$$ and the supply curve is $$Q_S = 5P - 200. $$What is the equilibrium price?

Accepted Answer

$$P = 70$$

Question 9

Which of the following would cause a rightward shift in the demand curve for computers?

Accepted Answer

A decrease in the price of a complementary good, such as computer software.

Question 10

If a firm’s marginal product of labor is less than the average product of labor, what happens to the average product as more labor is added?

Accepted Answer

The average product decreases.

Question 11

A monopolist faces the demand curve $$Q = 410 - 5P. If $$marginal cost is $$10$$, what is the profit-maximizing price?

Accepted Answer

$$P = 82$$

Question 12

Which of the following best describes the Nash equilibrium in a duopoly pricing game?

Accepted Answer

Each firm chooses its best strategy given the strategy chosen by the other firm, and neither has an incentive to change.

Question 13

If the price elasticity of demand for a good is $$-5.4$$, what does this imply about the demand for the good?

Accepted Answer

Demand is elastic; quantity demanded is highly responsive to price changes.

Question 14

Which of the following is an example of an explicit cost for a firm?

Accepted Answer

Wages paid to employees.

Question 15

If a firm is producing at a level where $$MC = ATC$$, what does this indicate?

Accepted Answer

The firm is at the minimum point of the average total cost curve.

Question 16

Suppose a firm’s total revenue is $$150,000$$, explicit costs are $$87,000$$, and implicit costs are $$5,000. $$What is the firm’s economic profit?

Accepted Answer

$$58,000$$

Question 17

Which of the following market structures is characterized by differentiated products and many firms?

Accepted Answer

Monopolistic competition

Question 18

If the price of a substitute good rises, what is the expected effect on the demand for the original good?

Accepted Answer

Demand for the original good increases.

Question 19

A firm’s production function is $$Q = 50L + 50K$$, where $$L is $$labor and $$K is $$capital. If $$L = 5$$ and $$K = 5$$, what is the total output?

Accepted Answer

$$Q = 500$$

Microeconomics Study Guide: Solutions to End of Chapter Problems (Farnham, Economics for Managers, 3e)

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