Question 1

Suppose a consumer has an income $$I = 100$$, the price of good 1 is $$p_1 = 10$, and the price of good 2 is p_2$ = 20. $$What is the maximum amount of good 1 the consumer can purchase if they spend all their income on good 1?

Accepted Answer

$$5$$

Question 2

Given the total cost function $$TC = 100 - \frac{1}{2}q^2$, what is the formula for average total cost (ATC)?

Accepted Answer

$$ATC = \frac{100}{q} + \frac{1}{2}q$$

Question 3

If the marginal cost (MC) is less than the average total cost (ATC), what happens to the ATC as output increases?

Accepted Answer

ATC decreases

Question 4

Which of the following best describes the opportunity cost of purchasing one more unit of good 1?

Accepted Answer

$$-\frac{p_1$}{p_2$}$$

Question 5

A firm in the short run will continue to produce as long as:

Accepted Answer

$$P \geq AVC$$

Question 6

If the price elasticity of demand for a product is $$-0.5$$, how would you describe the demand for this product?

Accepted Answer

Inelastic

Question 7

Which of the following is true at the minimum point of the average total cost (ATC) curve?

Accepted Answer

$$MC = ATC$$

Question 8

If a price ceiling is imposed below the equilibrium price in a perfectly competitive market, what is the likely outcome?

Accepted Answer

A shortage

Question 9

What is the formula for arc elasticity of demand?

Accepted Answer

$$\frac{\left[ \frac{Q^D_{new} - Q^D_{old}}{(Q^D_{new} + Q^D_{old})/2} \right]}{\left[ \frac{P_{new} - P_{old}}{(P_{new} + P_{old})/2} \right]}$$

Question 10

Which of the following statements about indifference curves is correct?

Accepted Answer

Indifference curves represent different levels of utility

Question 11

If a firm’s economic profit is zero in the long run, what does this imply?

Accepted Answer

The firm is earning a normal profit

Question 12

What is the shutdown point for a perfectly competitive firm in the short run?

Accepted Answer

Where $$P = MC = AVC$$

Question 13

If the demand curve is perfectly inelastic, what is the value of the price elasticity of demand?

Accepted Answer

$$0$$

Question 14

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what a consumer is willing to pay and what they actually pay

Question 15

If marginal cost (MC) is greater than average variable cost (AVC), what happens to AVC as output increases?

Accepted Answer

AVC increases

Question 16

A firm’s supply curve in the short run is:

Accepted Answer

The portion of the marginal cost curve above the average variable cost curve

Question 17

If the price of good 2 decreases, holding everything else constant, what happens to the budget constraint?

Accepted Answer

It rotates outward along the vertical axis

Question 18

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

Accepted Answer

There are barriers to entry

Question 19

What is the main disadvantage of a price ceiling in a competitive market?

Accepted Answer

It leads to a shortage and reduces social surplus

Microeconomics Study Guide: Consumer and Producer Theory, Elasticity, and Perfect Competition

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