Q: A competitive firm optimally produces where:

Both $$\text{Marginal cost} = \text{Marginal revenue}$$ and $$\text{Marginal cost} = \text{Price}$$ are correct.

Q: What is the equation for the price elasticity of demand?

$$\frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}$$

Question 1

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

Accepted Answer

It is the value of the best alternative use of a resource.

Question 2

Suppose the supply curve for a good is given by $$p = 2q. At a $$market price of $$p = 27$$, what is the dollar value of producer surplus?

Accepted Answer

$$108$$

Question 3

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

Accepted Answer

Markets are physical locations where trading occurs.

Question 4

If the price elasticity of demand for a product is $$-0.2$$ and the firm raises its price, what will happen to the firm's total revenue?

Accepted Answer

Total revenue will increase.

Question 5

Which of the following best explains why the supply curve is upward sloping?

Accepted Answer

Because of increasing marginal cost.

Question 6

Suppose the price of a good increases by $$10\%$$, and the elasticity of demand is $$-2. $$What will be the percent change in quantity demanded?

Accepted Answer

$$-20\%$$

Question 7

Which of the following is NOT one of the four principles of economics described by your instructor?

Accepted Answer

The free market is always the most efficient mechanism to distribute goods and services.

Question 8

A competitive firm optimally produces where:

Accepted Answer

Both $$	ext{Marginal cost} = 	ext{Marginal revenue}$$ and $$	ext{Marginal cost} = 	ext{Price}$$ are correct.

Question 9

Which of the following could be considered an economic agent?

Accepted Answer

All of the above

Question 10

Suppose a policy maker finds that, relative to towns with universities, those without them tend to be poorer and less populated. What can we conclude about the causal effect of universities?

Accepted Answer

We cannot conclude anything about causality from this correlation.

Question 11

What is the equation for the price elasticity of demand?

Accepted Answer

$$\frac{\%\ 	ext{change in quantity demanded}}{\%\ 	ext{change in price}}$$

Question 12

Which of the following statements about equilibrium is correct?

Accepted Answer

In equilibrium, everyone simultaneously optimizes, so that nobody benefits by changing his or her own behavior.

Question 13

For two goods that are substitutes, the cross-price elasticity of demand will be:

Accepted Answer

Positive

Question 14

Which of the following best describes consumer surplus?

Accepted Answer

Both b and c are correct.

Question 15

Suppose an economist finds that female undergraduate students were more likely to switch their major to economics if they were randomly exposed to a motivational speech by a female economist. What can we conclude about the causal effect of exposure to motivational speeches by female economists?

Accepted Answer

Exposure to motivational speeches by female economists causes more female students to switch to economics.

Question 16

In the long run, can firms operating in a competitive market earn positive economic profit?

Accepted Answer

No, because of the assumption of 'free entry'.

Question 17

Which of the following is a positive statement?

Accepted Answer

There is a positive correlation between the amount of time a student studies and the score they receive on their midterm exam.

Question 18

What is the definition of average total cost?

Accepted Answer

Fixed and variable cost divided by the volume of output.

Question 19

Suppose a competitive firm is operating efficiently. At their output level of $$100$$, the price is $$5$$, and the average total cost is $$4. $$What is the firm's profit?

Accepted Answer

$$100$$

Question 20

Why is the demand curve downward sloping?

Accepted Answer

Because of decreasing marginal utility.

Step-by-Step Guidance for Principles of Microeconomics Practice Midterm

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