Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative foregone when making a decision.

Question 2

Suppose the demand for coffee increases due to a rise in consumer income. What will likely happen to the equilibrium price and quantity of coffee?

Accepted Answer

Both equilibrium price and equilibrium quantity will increase.

Question 3

If the price elasticity of demand for a product is $$|E_d| = 2.5$$, what does this imply about consumer responsiveness?

Accepted Answer

Demand is elastic; consumers are highly responsive to price changes.

Question 4

A firm in a perfectly competitive market faces which of the following demand curves?

Accepted Answer

A perfectly elastic (horizontal) demand curve.

Question 5

Which equation represents the profit-maximizing rule for a firm in any market structure?

Accepted Answer

$$MR = MC$$

Question 6

If a monopolist faces the following demand and cost functions: $$P = 100 - 2Q$$ and $$TC = 20Q$$, what is the marginal revenue (MR) function?

Accepted Answer

$$MR = 100 - 4Q$$

Question 7

Which of the following is an example of a public good?

Accepted Answer

National defense.

Question 8

The law of diminishing marginal utility states that:

Accepted Answer

Marginal utility decreases as more units are consumed.

Question 9

Suppose a firm’s short-run total cost function is $$TC = 100 + 5Q + Q^2$. What is the marginal cost (MC) function?

Accepted Answer

$$MC = 5 + 2Q$$

Question 10

Which of the following best explains why externalities can lead to market failure?

Accepted Answer

They result in costs or benefits not reflected in market prices.

Question 11

If the cross-price elasticity of demand between two goods is positive, what does this indicate?

Accepted Answer

The goods are substitutes.

Question 12

A country can gain from trade if:

Accepted Answer

It specializes in producing goods for which it has a comparative advantage.

Question 13

Which of the following is a characteristic of a monopoly?

Accepted Answer

One seller and barriers to entry.

Question 14

If the government imposes a price ceiling below the equilibrium price, what is the likely result?

Accepted Answer

A shortage.

Question 15

Suppose the production function for a firm is $$Q = 10L$$^{0.5}$$K^{0.5}. If$$ $$L = 16$$ and $$K = 9$$, what is the output $$Q$?

Accepted Answer

$$Q = 60$$

Question 16

Which of the following best describes the law of diminishing marginal productivity?

Accepted Answer

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

Question 17

If a firm’s total revenue is $$TR = 50Q$$ and its total cost is $$TC = 10 + 30Q$$, what is the profit-maximizing output if the firm is a price taker?

Accepted Answer

$$Q is $$any positive value since $$P \u003e MC$$

Question 18

Which of the following is an example of a government policy to address a negative externality?

Accepted Answer

Imposing a tax on the producer.

Question 19

If the price of a good increases by 10% and the quantity demanded decreases by 5%, what is the price elasticity of demand?

Accepted Answer

$$E_d = -0.5$$

Question 20

Which of the following best describes a factor market?

Accepted Answer

A market where resources such as labor and capital are bought and sold.

Principles of Microeconomics: Course Syllabus and Study Guide

Study Guide - Practice Questions