Download Microeconomics Review

Microeconomics Review
K.Peren Arin
Question 1
•
a)
b)
c)
d)
Which of the following would NOT shift
the demand curve for fish?
An increase in consumer income
A decrease in price of ham
A change in tastes for Turkey
A decrease in the price of fish
Question 2
•
a)
b)
c)
d)
If the market price for pencil sharperners
is less than the equilibrium price, then,
there is excess_______of/for pencil
sharperners, and the price
will__________in a competitive market
demand, rise
demand. fall
supply, rise
supply, fall
Question 3
•
a)
b)
c)
d)
Which of the following would shift the
demand curve for Pepsi to the right?
A consumer boycott
A decrease in national income
An increase in price of Coke
A decrease in price of Pepsi
Question 4
•
a)
b)
c)
d)
A Vertical demand curve has
unit elasticity
infinite elasticity
zero elasticity
varying elasticity
Question 5
•
a)
b)
c)
d)
Which of the following is likely to have
the lowest price elasticity of demand?
An automobile
A Ford
A Ford Mustang
A ford Mustang without AC
Question 6
•
a)
b)
c)
d)
The cross elasticity of demand between CocaCola and Pepsi-Cola is
positive- that is, Coke and Pepsi are
complements
positive- that is, Coke and Pepsi are substitutes
negative- that is, Coke and Pepsi are
complements
negative- that is, Coke and Pepsi are
substitutes
Question 7
•
a)
b)
c)
d)
The local pizza restaurant makes such
great bread sticks that consumers do not
respond much to a change in the price. If
the owner is only interested in increasing
revenue, he should:
reduce costs
b) lower the price
c) raise the price
d) not change the price
Question 8
•
a)
b)
c)
d)
If the minimum wage is above the equilibrium
wage,
anyone who wants a job at the minimum wage
can find one
the quantity demanded of labor will be greater
than the quantity supplied
the quantity demanded of labor will be equal
the quantity of labor supplied
the quantity demanded of labor will be less
than the quantity supplied
Question 9
• Economies of scale occur when
a) Average fixed cost increases as output
increases
b) Average total cost declines as output
increases
c) Average variable cost increases as
output increases
d) Average fixed cost declines as output
increases
Question 10
•
a)
b)
c)
d)
For a firm that operates in a perfectly
competitive market
Marginal Revenue is below price
as quantity produced rises, the price of
final product must also rise
the price of the product will decrease as
production increases
the price it charges for its product is not
dependent on quantity sold
Question 11
•
a)
b)
c)
d)
e)
When free entry is one of the attributes
of a market structure, economic profits
are
eventually driven to zero
negative for all firms
sacrificed to excess capacity
always positive
greater than accounting profits
Question 12
•
a)
b)
c)
d)
When a firm has a natural monopoly, other
firms do not enter the market because
by definition natural monopolies are protected
by the government
the owners of natural monopolies have
exclusive rights to key resources
new firms cannot achieve the same low costs
as the current monopolist
None of the above is correct
Taxing a Monopoly
$
MXX
c
P0
Pn
i
dh
Economic
Economic Profits
Profits
a
after unit
tax f
g
b
ATCX
ATC0
DX
MRX
X1 X0
MRX’
DX’
X per year
Question 13
• Consider the market for CDs. The equilibrium price is
$15 and the equilibrium quantity is 1000. The
government introduces a $2 tax on each CD sold. The
quantity in the market decreases to 900 as a result of the
tax. Assuming that the demand and supply has the same
elasticity,
• Calculate the price buyers pay
• Calculate the price sellers receive
• Does it matter if the tax is imposed on the producer or
the consumer?
• Calculate the tax revenue
• Calculate the deadweight loss.
Question 14
• Suppose that there are two firms in the market: Firm A and Firm B.
They have to choose the level of output. If they produce together the
monopoly output, each firm can make $20 mln. If firm A produces
half the monopoly output, and firm B produces 2/3 of it, Firm B will
have $22 mln, and Firm A will have a profit of $15 mln. If Firm B
produces half the monopoly output and Firm B produces 2/3 of it,
the reverse is true. If both firms produce 2/3 of the monopoly output,
each of them will make a profit of $17 mln.
• Draw the decision box of this game
• What is the Nash equilibrium for this game?
• Is there an outcome that would be better than Nash equilibrium for
both firms? Can it be achieved? How?
• If Nash equilibrium quantity is Oligopoly quantity, compare it with
monopoly quantity and perfect competition quantity.
• If Nash equilibrium price is Oligopoly price, compare it with
monopoly price and perfect competition price.