Question 1

Suppose the demand for coffee increases due to a rise in consumer income. According to the law of demand, what will happen to the equilibrium price and quantity of coffee in a competitive market?

Accepted Answer

Equilibrium price and equilibrium quantity will both increase.

Question 2

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

Accepted Answer

The value of the next best alternative forgone when a choice is made.

Question 3

If the price of a substitute good increases, what is the likely effect on the demand curve for the original good?

Accepted Answer

The demand curve will shift to the right.

Question 4

A firm in a perfectly competitive market faces the following cost structure: Total Cost (TC) = $$100 + 5Q + Q^2$, where Q$ is the quantity produced. If the market price is 25$, what is the profit-maximizing output level for the firm?

Accepted Answer

$$Q = 20$$

Question 5

Which of the following statements about price elasticity of demand is correct?

Accepted Answer

If demand is inelastic, an increase in price will increase total revenue.

Question 6

Using the midpoint formula, calculate the price elasticity of demand when the price of a product increases from $$10 to 12$ and the quantity demanded decreases from 100$ to 80$.

Accepted Answer

$$1.11$$

Question 7

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

Accepted Answer

Products are differentiated.

Question 8

Suppose a firm’s marginal cost (MC) is given by $$MC = 4 + 2Q. If $$the market price is $$20$$, what is the profit-maximizing output level for the firm in the short run?

Accepted Answer

$$Q = 8$$

Question 9

If a government imposes a binding price ceiling below the equilibrium price, what is the most likely outcome in the market?

Accepted Answer

A shortage will occur.

Question 10

Which of the following best explains why the marginal cost curve typically slopes upward?

Accepted Answer

Because of diminishing marginal returns.

Question 11

A firm’s total revenue is $$TR = P 	imes Q. If $$the price is $$15$$ and the firm sells $$200$$ units, what is the total revenue?

Accepted Answer

$$3,000$$

Question 12

If the cross-price elasticity of demand between two goods is positive, what does this imply about the relationship between the goods?

Accepted Answer

They are substitutes.

Question 13

Suppose the government imposes a per-unit tax on sellers. Which of the following is most likely to occur?

Accepted Answer

The supply curve shifts to the left.

Question 14

Which of the following is true about the long-run equilibrium in a perfectly competitive market?

Accepted Answer

Firms produce at the minimum point of their average total cost curve.

Question 15

If a firm’s average total cost (ATC) is $$10 at $$the profit-maximizing output and the market price is $$8$$, what should the firm do in the short run?

Accepted Answer

Continue producing if price covers average variable cost.

Question 16

Which of the following best describes diminishing marginal returns?

Accepted Answer

Each additional unit of input increases output by a smaller amount.

Question 17

Suppose the price elasticity of supply for a product is $$0.5. If $$the price increases by $$10\%$$, by what percentage will the quantity supplied change?

Accepted Answer

$$5\%$$

Question 18

A bakery can produce 100 loaves of bread per day at a total cost of $$200. If $$the bakery increases production to 120 loaves per day and total cost rises to $$240$$, what is the marginal cost of producing each additional loaf?

Accepted Answer

$$2$$

Question 19

Which of the following is an example of a real-world application of the concept of elasticity?

Accepted Answer

A city government increases bus fares and observes a decrease in ridership.

Question 20

If a firm’s total cost is $$TC = 50 + 10Q$$, and the market price is $$20$$, what is the firm’s profit when it produces $$5$$ units?

Accepted Answer

$$50$$

Microeconomics Study Guide: Chapters 1–7 Key Concepts and Problem Areas

Study Guide - Practice Questions

Study Guide - Flashcards