Q: Which of the following is the correct formula for calculating the price elasticity of demand?

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

Q: If a firm’s total cost is $$TC = 100 + 5Q + Q^2$, what is the marginal cost when Q = 3$?

$$MC = 5 + 2Q = 5 + 2 \times 3 = 11$$

Question 1

Suppose a country can produce either 100 units of wheat or 200 units of corn using all its resources. What is the opportunity cost of producing one unit of wheat?

Accepted Answer

$$2$$ units of corn$

Question 2

Which of the following best describes the law of increasing opportunity cost as illustrated by a bowed-out production possibilities frontier (PPF)?

Accepted Answer

As more of one good is produced, the opportunity cost of producing additional units increases.

Question 3

If the price of coffee increases, which of the following will most likely occur in the market for tea, assuming tea is a substitute for coffee?

Accepted Answer

The demand for tea will increase, causing the demand curve to shift right.

Question 4

A government sets a minimum wage above the equilibrium wage in the labor market. What is the most likely result?

Accepted Answer

A surplus of labor, or unemployment, will occur.

Question 5

If the price elasticity of demand for a product is $$-2$$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will decrease.

Question 6

Which of the following is the correct formula for calculating the price elasticity of demand?

Accepted Answer

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

Question 7

A firm in perfect competition maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 8

Which of the following is a characteristic of a monopoly but not of perfect competition?

Accepted Answer

The firm is a price maker.

Question 9

If a negative externality is present in a market, what is the result if the market is left unregulated?

Accepted Answer

The market will produce more than the socially optimal quantity.

Question 10

Country A can produce 10 cars or 20 computers with its resources, while Country B can produce 8 cars or 16 computers. Which country has the comparative advantage in producing cars?

Accepted Answer

Neither; both have the same opportunity cost.

Question 11

If the government imposes a tariff on imported steel, what is the most likely short-run effect on the domestic steel market?

Accepted Answer

Domestic steel prices will rise, and domestic producers will supply more.

Question 12

Which of the following best describes the difference between a movement along the demand curve and a shift of the demand curve?

Accepted Answer

A movement is caused by a change in price; a shift is caused by a change in a non-price determinant.

Question 13

Which of the following is the correct formula for marginal cost?

Accepted Answer

$$\frac{\Delta TC}{\Delta Q}$$

Question 14

A quota on imported sugar will most likely result in which of the following?

Accepted Answer

A decrease in the quantity of sugar imported and an increase in domestic sugar prices.

Question 15

If a firm’s total cost is $$TC = 100 + 5Q + Q^2$, what is the marginal cost when Q = 3$?

Accepted Answer

$$MC = 5 + 2Q = 5 + 2 	imes 3 = 11$$

Question 16

Which of the following is most likely to occur in a perfectly competitive market in the long run?

Accepted Answer

Firms earn zero economic profit.

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