Question 1

Which of the following statements best describes perfect complements in consumer theory?

Accepted Answer

They are goods that must be consumed in a fixed ratio to achieve utility.

Question 2

If a consumer is indifferent between bundle A and bundle B, and between bundle B and bundle C, which property of preferences does this illustrate?

Accepted Answer

Transitivity

Question 3

Suppose the marginal product of labor ($$MPL) is 0.75 $$and the marginal product of capital ($$MPK) is 1.25. $$What is the marginal rate of technical substitution ($$MRTS) of $$labor for capital?

Accepted Answer

$$MRTS = \frac{MPL}{MPK} = \frac{0.75}{1.25} = 0.6$$

Question 4

Which of the following is true about Giffen goods?

Accepted Answer

They are inferior goods for which demand increases as price increases.

Question 5

A consumer chooses a bundle on the budget line that is also tangent to an indifference curve. What does this point represent?

Accepted Answer

The optimal consumption bundle

Question 6

If the slope of the indifference curve equals the slope of the budget line, what condition is satisfied?

Accepted Answer

Consumer equilibrium (optimality condition)

Question 7

Given the Cobb-Douglas production function $$Q = K$$^{0.5}$$L^{0.5}$, what happens to output if both inputs are doubled?

Accepted Answer

Output will double, showing constant returns to scale.

Question 8

Which of the following is NOT a property of indifference curves for perfect substitutes?

Accepted Answer

They are L-shaped.

Question 9

If capital increases in a production process, what is the likely effect on the productivity of labor?

Accepted Answer

Productivity of labor increases.

Question 10

Which equation represents the optimality condition for a producer using labor and capital?

Accepted Answer

$$MRTS = \frac{w}{r}$$

Question 11

A consumer’s budget line shifts outward but the slope remains unchanged. What does this indicate?

Accepted Answer

The consumer’s income has increased, but prices remain the same.

Question 12

Which of the following is true about normal goods?

Accepted Answer

Demand for normal goods increases as income increases.

Question 13

If a consumer’s preferences are monotonic, what does this imply?

Accepted Answer

More of any good is always preferred to less.

Question 14

Suppose a firm’s cost function is $$C = rK + wL. If $$the price of labor ($$w) $$increases, what happens to the cost of production?

Accepted Answer

The cost of production increases.

Question 15

Which of the following is a property of indifference curves for perfect complements?

Accepted Answer

They are L-shaped.

Question 16

If a consumer’s indifference curves are thick or cross, what does this imply?

Accepted Answer

The consumer’s preferences are inconsistent.

Question 17

Which of the following best describes the marginal product of labor ($$MPL$$)?

Accepted Answer

The additional output produced by one more unit of labor, holding capital constant.

Question 18

If a consumer’s budget line is tangent to an indifference curve at point A, but not at point B, which bundle is preferred?

Accepted Answer

Bundle A is preferred because it is optimal.

Question 19

Which of the following is true about inferior goods?

Accepted Answer

Demand for inferior goods decreases as income increases.

Question 20

If the marginal rate of technical substitution ($$MRTS) is $$decreasing as more labor is used, what does this imply about the production function?

Accepted Answer

The production function exhibits diminishing marginal returns to labor.

Microeconomics Study Notes: Consumer Choice, Indifference Curves, and Production Theory

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