Question 1

Suppose a market for electric cars is in equilibrium. If the marginal benefit of producing an additional car is greater than the marginal cost, what should happen to the quantity of cars produced to achieve allocative efficiency?

Accepted Answer

The quantity produced should increase until marginal benefit equals marginal cost.

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what consumers are willing to pay and what they actually pay.

Question 3

A city government imposes a price ceiling on apartment rents below the equilibrium price. Which of the following is a likely consequence?

Accepted Answer

A shortage of apartments and increased search activity.

Question 4

If the marginal cost curve for a good is upward sloping and the marginal benefit curve is downward sloping, what does the intersection of these curves represent?

Accepted Answer

The market equilibrium and allocative efficiency.

Question 5

A government sets a price floor above the equilibrium price for wheat. What is the most likely outcome?

Accepted Answer

A surplus of wheat and decreased consumer surplus.

Question 6

Given the following total product schedule for a firm:

Output: 0, 1, 2, 3, 4
Total Product: 0, 10, 18, 24, 28

What is the marginal product of the third unit of input?

Accepted Answer

$$MP_3 = 24 - 18 = 6$

Question 7

Which of the following is an example of an implicit cost for a business owner?

Accepted Answer

The foregone salary the owner could have earned elsewhere.

Question 8

If a firm’s total cost is $$TC = TFC + TVC$$, and total fixed cost is $$100$$, total variable cost is $$300$$, what is the average total cost when output is $$10$$ units?

Accepted Answer

$$ATC = \frac{100 + 300}{10} = 40$$

Question 9

Which of the following best explains the law of decreasing marginal returns?

Accepted Answer

As more of a variable input is added to a fixed input, marginal product eventually decreases.

Question 10

A production quota is set below the equilibrium quantity in the milk market. What is the most likely effect?

Accepted Answer

Deadweight loss increases due to underproduction.

Question 11

Suppose the demand curve for a good is also the marginal benefit curve. If the price of the good is set above equilibrium, what happens to consumer surplus?

Accepted Answer

Consumer surplus decreases.

Question 12

Which of the following is NOT a source of market failure?

Accepted Answer

Perfect competition.

Question 13

If a firm experiences economies of scale, what happens to its long-run average cost as output increases?

Accepted Answer

Long-run average cost decreases.

Question 14

A firm’s total cost function is $$TC = 50 + 5Q + Q^2$. What is the marginal cost when Q = 3$?

Accepted Answer

$$MC = 5 + 2Q = 5 + 2 	imes 3 = 11$$

Question 15

Which of the following statements about the relationship between average product (AP) and marginal product (MP) is correct?

Accepted Answer

When MP is above AP, AP is rising.

Question 16

If a government wants to maximize total surplus in a market, which policy should it pursue?

Accepted Answer

Allow the market to reach equilibrium without intervention.

Question 17

Which of the following best describes the 'big tradeoff' in economics?

Accepted Answer

The tradeoff between efficiency and fairness in resource allocation.

Question 18

A firm’s explicit costs are $$200,000$$, implicit costs are $$50,000$$, and total revenue is $$300,000. $$What is the firm’s economic profit?

Accepted Answer

$$300,000 - (200,000 + 50,000) = 50,000$$

Question 19

Which of the following is true about the effect of a price ceiling on producer surplus?

Accepted Answer

Producer surplus decreases because the price is lower than equilibrium.

Question 20

If the long-run average cost curve is flat over a range of output, what does this indicate?

Accepted Answer

Constant returns to scale.

Microeconomics Study Notes: Efficiency, Government Actions, and Production & Cost

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