Question 1

Suppose the price of a normal good decreases. Using the concepts of income and substitution effects, which of the following best describes the consumer's response?

Accepted Answer

Both the substitution and income effects lead the consumer to buy more of the good.

Question 2

A Giffen good is characterized by which of the following properties?

Accepted Answer

The income effect is negative and larger than the substitution effect, so demand decreases as price falls.

Question 3

Given two individual demand curves: $$Q_1 = 10 - 2P$ and Q_2$ = 8 - P$$, what is the aggregate market demand curve for $$P \leq 4$$?

Accepted Answer

$$Q = 18 - 3P$$

Question 4

A gasoline tax-and-rebate policy returns all tax revenue to consumers. Which of the following is true about the resulting budget line and consumer welfare?

Accepted Answer

The budget line pivots inward and then shifts outward to pass through the final bundle, but the consumer is worse off.

Question 5

Suppose a short-run production function is $$Q = 4L$$, where $$K is $$fixed. What is the marginal product of labor ($$MPL$$)?

Accepted Answer

$$MPL = 4$$

Question 6

If the total cost function is $$TC = 30 + 10L$$ and $$Q = 2L$$, what is the average variable cost ($$AVC) as a $$function of $$Q$$?

Accepted Answer

$$AVC = 5$$

Question 7

Given a production function $$Q = 2KL$$ and a desired output $$Q = 16$$, what is the equation for the isoquant?

Accepted Answer

$$K = 8/L$$

Question 8

A firm faces the cost function $$TC(q) = 5q^2$ + 10q + 100. $$What is the minimum average variable cost ($$AVC_{min}$$)?

Accepted Answer

$$10$$

Question 9

In the long run, cost minimization for $$Q_0 = 18$ with Q = KL$, w = 10$, and r = 20$ leads to which combination of L$ and K$?

Accepted Answer

$$L = 6, K = 3$$

Question 10

Which of the following is NOT a condition for perfect competition?

Accepted Answer

Product differentiation

Question 11

A perfectly competitive firm faces a market price $$P = 18$$ and has marginal cost $$MC(q) = 6 + 2q. $$What is the profit-maximizing output?

Accepted Answer

$$q^* = 6$$

Question 12

If a firm’s average variable cost curve reaches its minimum at $$AVC_{min} = 10$$, what is the shutdown price in the short run?

Accepted Answer

$$10$$

Question 13

For a linear inverse demand function $$P = 80 - 15Q$$, what is the monopolist’s marginal revenue function?

Accepted Answer

$$MR(Q) = 80 - 25Q$$

Question 14

A monopolist faces $$P = 100 - 2Q$$ and $$MC(Q) = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q^* = 20$$

Question 15

Which of the following best explains why a monopoly creates deadweight loss?

Accepted Answer

It produces less than the competitive equilibrium quantity, so some mutually beneficial trades do not occur.

Question 16

If the government imposes a price ceiling at the competitive equilibrium price in a monopoly market, what is the likely effect?

Accepted Answer

The deadweight loss is eliminated, and output increases to the competitive level.

Question 17

Which of the following is true about the relationship between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

MC intersects ATC at the minimum point of ATC.

Question 18

If a firm’s supply curve is $$Q = 2 + 3P$$ and there are 5 identical firms, what is the industry supply curve?

Accepted Answer

$$Q = 10 + 15P$$

Question 19

Which of the following is a source of monopoly power?

Accepted Answer

Significant economies of scale

Question 20

In welfare analysis, what does producer surplus represent?

Accepted Answer

The area between the market price and the supply curve, up to the quantity sold

Microeconomics Study Notes: Consumer and Producer Theory, Production, Costs, and Market Structures

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