MICRO Final Questions

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

Exactly $2.50

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn

When the government places a production subsidy on a product in an efficient market

without additional information, such as the elasticity of demand for this product, it is impossible to compare the welfare gains of the sellers with the welfare gains of the buyers.

Suppose the demand function for good X is given by: Qdx = 15 − 0.5Px − 0.8Py where Qdx is the quantity demanded of good X, Px is the price of good X, and Py is the price of good Y, which is related to good X. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross-price elasticity of demand is about

−2.57, and X and Y are complements

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are

$100, and her economic profits are $25.

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

$250

A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34.

13000

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?

170

The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. When the firm produces 150 units of output, its total cost is

3,675

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by

40 percent

Which of the following will NOT increase the demand for cereal? An increase in the cost of oats. A decrease in the price of milk. Both a and c. An increase in consumer incomes. A decrease in the price of cereal.

An increase in the cost of oats., A decrease in the price of cereal.

Which of the following is not a characteristic of a public good?

Because it is a free good, there is no opportunity cost.

What would happen to the equilibrium price and quantity of lattés if the cost of producing steamed milk, which is used to make lattés, rises?

The equilibrium price would increase, and the equilibrium quantity would decrease

Which of the following is an example of a positive externality?

The mayor of a small town plants flowers in the city park.

Suppose that a $3.00 tax per pack is imposed on cigarettes, for which the demand is relatively inelastic and the supply is relatively elastic. Which of the following best describes the relative tax incidence?

The price buyers pay increases by more than $1.50 and the price sellers receive decreases by less than $1.50.

Which of the following is not a determinant of the demand for a particular good?

The prices of the inputs used to produce the good

Trade between countries

allows each country to consume at a point outside its production possibilities frontier

A decrease in the price of a good will

decrease in quantity supplied

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change

The equilibrium quantity in markets characterized by oligopoly is

higher than in monopoly markets and lower than in perfectly competitive markets

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

inelastic

In order to sell more of its product, a monopolist must

lower its price

The two types of imperfectly competitive markets are

monopolistic competition and oligopoly

If the supply curve is perfectly elastic (horizontal) and a $12 per unit sales tax is imposed on the buyers then the net price received by suppliers will

not decrease.

Because public goods are

not excludable, people have an incentive to be free riders

Doris bakes homemade bread and cookies in her bakery. Darren rents an apartment above Doris's bakery. The odor of the baking bread and cookies is a

positive externality if Darren likes the odor yet pays market value for his monthly rent.

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,

price will exceed marginal cost.

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the

quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are

substitute goods

If the price of cola does not affect the amount of beer that people drink in any way then we know that

the cross-price elasticity for cola and beer is zero

Which of the following quantities decrease in response to a tax on a good?

the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good

One explanation for why the market long-run supply curve slopes upward is because

the inputs in production are only available in limited quantities.

ou are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

the mayor thinks demand is inelastic, and the city manager thinks demand is elastic

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good