Micro final

Question 1

Which condition corresponds to perfect competition?

A) There are few firms producing identical products.

B) Firms can leave the market without any restrictions.

C) Only a specific group of consumers is available to buy the product.

Answer 1

B) Firms can leave the market without any restrictions.

Question 2

A situation where markets consider only some social costs instead of all of them is called
[blank].

A) a spillover

B) deadweight loss

C) social surplus

D) a market failure

Answer 2

D) a market failure

Question 3

The demand curve has a vertical appearance.
Which case of elasticity does this statement describe? Select the best answer.

A) Inelastic

B) Unitary

C) Elastic

Answer 3

A) Inelastic

Question 4

Which statement is correct? Select the best answer.

A) Public policy should not interfere with positive externalities.

B) When positive spillovers exist in a market, the market demand curve represents marginal social costs.

C) The socially optimal level of output of a firm producing positive externalities is greater than the market quantity.

Answer 4

C) The socially optimal level of output of a firm producing positive externalities is greater than the market quantity.

Question 5

An electronics manufacturer has $1,000 to allocate per new smartphone. It can spend
$50 per hour of battery life or $10 per gigabyte of storage space.
Which of the following combinations are on the budget constraint? Select all that apply.

A) 19 hours of battery life; 5 gigabytes of storage.

B) 10 hours of battery life; 50 gigabytes of storage.

C) 50 hours of battery life; 10 gigabytes of storage.

Answer 5

A) 19 hours of battery life; 5 gigabytes of storage.

Question 6

Imagine you are choosing between purchasing two goods: pillows and sunglasses. Assume both are normal goods.
How would you respond to the income effect of a decrease in the price of pillows?
Select the best answer.

A) You will buy more pillows and more sunglasses.

B) You will buy fewer pillows and more sunglasses.

C) You will buy fewer pillows and fewer sunglasses.

D) You will buy more pillows and fewer sunglasses.

Answer 6

A) You will buy more pillows and more sunglasses.

Question 7

The demand curve in a market is described by the equation
𝑄𝑄𝑑𝑑 = 56− 13𝑃𝑃, and the
supply curve is described by the equation 𝑄𝑄𝑠𝑠 = 12 + 7𝑃𝑃, where P is the price of gasoline and Q is the quantity of gasoline (in millions of gallons).
Suppose the price of gasoline is $3.00 per gallon. What would be the outcome in the gasoline market? Select the best answer

A) There would be a surplus.

B) There would be equilibrium.

C) There would be a shortage.

Answer 7

A) There would be a surplus.

Question 8

Suppose there is an increase in demand. What is the effect on equilibrium price? Select
the best answer.

A) The equilibrium price will decrease.

B) There will be no effect on the equilibrium price.

C) The equilibrium price will increase.

Answer 8

C) The equilibrium price will increase.

Question 9

Look at review

Answer 9

Key

Question 10

A flower shop specializing in wedding bouquets can employ up to three florists. The first florist can make 10 wedding bouquets per working day. The marginal product of employing the second florist is 13 bouquets per day, and the marginal product of employing the third florist is 15 bouquets per day. Calculate the total number of wedding bouquets three florists can make per day and enter your answer in the box below.

Answer: _______________ bouquets

Answer 10

38 bouquets

Question 11

Look at 11 on review

Answer 11

Key

Question 12

Is the following statement true or false? Select the best answer.
All factors are variable in the short run.

A) This statement is true.

B) This statement is false.

Answer 12

B) This statement is false.

Question 13

The price of a bass guitar is $250, and the average total cost is $90.
Based on this information, which of the following statements is true? Select the best answer.

A) Musical instrument firms will enter the market.

B) Musical instrument firms will exit the market.

C) The market is in equilibrium.

Answer 13

A) Musical instrument firms will enter the market.

Question 14

A local artisan produces handmade toys. The monthly office rent is $990. The production materials cost $480 a month. In one month, the artisan can produce 75 toys. What is the maximum price at which the artisan should exit the market in the long
run? Enter your answer in the box below and round to two decimal places if necessary.

Answer: $_______________

Answer 14

$19.60

Question 15

Which of the following are characteristics of a natural monopoly? Select all that apply.

A) The fixed costs and marginal costs of production are high enough to deter competitors.

B) Natural monopolies are owned and run by the government.

C) A natural monopoly could result when a company has control over a scarce physical resource.

D) A natural monopoly may arise in smaller local markets for products that are difficult to transport.

Answer 15

C) A natural monopoly could result when a company has control over a scarce physical resource.

Question 16

Economists argue that instead of regulating behavior through command-and-control policies, the government could use market-oriented tools to achieve environmental goals. One such instrument is the marketable permit program. Which of the following statements about the marketable permits program is false?
Select the best answer.

A) Given that different firms typically have different costs of pollution reduction, trade able pollution permits help reduce the total costs of pollution abatement.

B) Under a system of marketable pollution permits, a firm with high marginal abatement costs will buy permits from a firm with low marginal abatement costs.

C) In a cap-and-trade permit system, polluting firms set the maximum allowable amount of pollution and negotiate amongst themselves how best to meet this target using the price mechanism.

D) In a cap-and-trade emissions program, each polluter is given trade able permits that allow a certain amount of pollution.

Answer 16

C) In a cap-and-trade permit system, polluting firms set the maximum allowable amount of pollution and negotiate amongst themselves how best to meet this target using the price mechanism.

Question 17

Look at review

Answer 17

Key

Question 18

Suppose a company creates its own differentiated type of sneaker and is thus considered a monopolistically competitive firm. This firm has a constant marginal cost curve. For each unit of output that the monopolistically competitive firm produces, it costs an additional $20. The firm’s marginal revenue curve is MR = 50 − 10𝑄𝑄, where Q is the quantity produced. The firm’s perceived demand curve is
𝑃𝑃 = 50 − 5𝑄𝑄.
What is the monopolistically competitive firm’s profit-maximizing output and price?
Write the exact answer. Do not round.
Answer:
Quantity =_______________
𝑃rice = $_______________

Answer 18

3, $35

Question 19

Look at review

Answer 19

Key

Question 20

Look at review

Answer 20

Key

Question 21

True or False: An isoquant of 200 units represents all possible combinations of labor and
capital that can be employed to produce 200 units.

A) True

B) False

Answer 21

A) True

Question 22

Look at review

Answer 22

Key

Question 23

Look at review

Answer 23

Key

Question 24

Look at review

Answer 24

Key

Question 25

Look at review

Answer 25

Key

Question 26

Suppose a market has the following Demand: Q = 120−0.1P , Marginal Costs: MC =200+30Q, and Marginal Revenue: MR = 1200 − 20Q.

Step 1. How much does the monopolist supply and what price does he charge?

A) Q = 30, P = 900

B) Q = 20, P = 1000

C) Q = 100, P = 200

D) Q = 28, P = 920

Step 2. Draw a graph (not graded) and use your graph to calculate the consumer surplus associated with this scenario.

A) 500

B) 1000

C) 4000

D) 2000

Answer 26

B) Q = 20, P = 1000
D) 2000

Question 27

Look at review

Answer 27

Key

Question 28

Which option correctly completes the blanks in the following scenario? Select the best answer.

Nancy buys plums and other goods. For Nancy, plums are an inferior good, and all other goods can be considered normal. If the price of plums falls, the substitution effect will cause Nancy to buy [blank] plums and [blank] other goods.

A) more; more

B) fewer; more

C) fewer; fewer

D) more; fewer

E) There is no effect because income has not changed.

Answer 28

D) more; fewer

Question 29

EXTRA CREDIT:
Using economic reasoning and concepts discussed in this class, explain why the government
might want to pay for some of the costs firms, like Pfizer, that are developing COVID-19
vaccines:
(Write no more than 3-4 sentences)