Question 1

Zach takes 10 hours to complete a painting and 8 hours to create a sculpture. He has 30 hours of time to spend on both activities. Which of the following combinations will lie on Zach’s production possibilities curve?

Accepted Answer

2 paintings and 2 sculptures

Question 2

Suppose two workers are producing widgets and gadgets. Worker V can produce 12 widgets or 6 gadgets in a week, and Worker Z can produce 8 widgets or 8 gadgets in a week. Who has the comparative advantage in producing gadgets?

Accepted Answer

Worker Z, because his opportunity cost of producing a gadget is lower

Question 3

If a firm’s cost of compliance with EPA is $$200 and the government assesses 150 $$worth of pollution damage to the environment, what is the efficient outcome?

Accepted Answer

The firm should not be required to reduce pollution

Question 4

Suppose the marginal benefit (MB) curve for a product is $$MB = 30 - Q. $$This implies that the marginal revenue is $$MR(Q) = 30 - 2Q. $$What is the profit-maximizing quantity for a monopolist if marginal cost is $$MC(Q) = 6$$?

Accepted Answer

$$Q = 12$$

Question 5

Consider a firm that produces and sells a good for the price of $20 in a perfectly competitive market. The following table shows the total product, marginal product, and value of marginal product of labor. What is the value of marginal product of the third worker hired?

Accepted Answer

$$60$$

Question 6

The value of a typical national unit at a beach is a(n) ________.

Accepted Answer

public good

Question 7

Refer to the figure showing the demand, supply, and marginal social benefit curves for Good Y. If the marginal external benefit (MEB) exists, what is the efficient quantity of Good Y?

Accepted Answer

The quantity where MSB intersects supply

Question 8

Suppose the government imposes a tax of $$10 per video game that is collected from consumers (demanders). If the demand for video games is Q^D = 100 - P$ and the supply is Q^S = P - 20$, what is the new equilibrium price paid by consumers after the tax?

Accepted Answer

$$P = 65$$

Question 9

Which of the following statements best describes a Nash equilibrium in a simultaneous-move game?

Accepted Answer

Each player chooses a strategy that is a best response to the strategies chosen by the other players

Question 10

Suppose the labor in Westland and Eastland can be used to produce meat or synthesized electronics. The unit labor requirements are as follows: Westland: 2 hours per unit of meat, 4 hours per unit of electronics; Eastland: 3 hours per unit of meat, 2 hours per unit of electronics. Which country has a comparative advantage in electronics?

Accepted Answer

Eastland

Question 11

Suppose the demand and supply for the Home country are $$Q^D = 17 - P$$ and $$Q^S = 1 + P/2. $$The Foreign country’s supply is $$Q^S = 3 + P/2. $$Under free trade, Home Country consumes exactly 10 units. What is the world price?

Accepted Answer

$$P = 7$$

Question 12

Suppose the market for a good has the demand schedule $$Q^D = 100 - P$$ and the supply schedule is $$Q^S = P - 20. $$What is the equilibrium price and quantity?

Accepted Answer

$$P = 60$$, $$Q = 40$$

Question 13

Suppose a firm in a perfectly competitive market has the following cost structure: $$MC = 2 + Q$$, and marginal revenue $$MR = 7. At $$what output does the firm maximize profit?

Accepted Answer

$$Q = 5$$

Question 14

Suppose the marginal cost of pollution abatement is $$MC = 10 + 2Q$$ and the marginal benefit is $$MB = 70 - Q. $$What is the efficient level of abatement?

Accepted Answer

$$Q = 20$$

Question 15

Suppose the demand for a Chip world is $$Q^D = 100 - P$$ and the price is $$P = 40. $$What is the consumer surplus?

Accepted Answer

$$1800$$

Question 16

Suppose Beth and Charles are playing a trust game. At the beginning of the game, both have to choose whether to trust Charles. If both trust, each earns $$10. If both defect, each earns 5. If $$one trusts and the other defects, the defector earns $$15 and the truster earns 0. $$What is the Nash equilibrium?

Accepted Answer

Both defect

Question 17

Suppose the Herfindahl-Hirschman Index (HHI) for an industry is calculated as the sum of the squares of market shares of all firms. If there are four firms with market shares of 40%, 30%, 20%, and 10%, what is the HHI?

Accepted Answer

3000

Microeconomics Practice Exam Study Notes

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