Industrial Organization explores the structure, behavior, and performance of firms and industries in the marketplace. The course analyzes how businesses compete, the role of market power, pricing strategies, product differentiation, and the impact of government regulation and antitrust policies. Using economic theory and real-world case studies, students gain insights into monopolies, oligopolies, and competitive markets, as well as the strategic interactions among firms that shape market outcomes and consumer welfare.
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Microeconomics 2nd Edition by
Daron Acemoglu
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2
Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) Which of the following correctly identifies the trade-off that a budget constraint represents?
A) The amount of income that must be given up to obtain an additional unit of a good B) The maximum amount of two goods that a consumer can purchase given his income
C) The optimum combination of goods that a consumer with a given income should purchase
D) The amount of one good that has to be given up to purchase an additional unit of the other good
Answer: D
Q2) Which of the following is an example of a normative economic statement?
A) An increase in government expenditure will lead to an increase in well-being.
B) An increase in the money supply will lead to an increase in the inflation rate.
C) An increase in income is accompanied by an increase in savings.
D) An increase in income is accompanied by an increase in consumption.
Answer: A
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3
Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) Refer to the table above.The average monthly wage of the five workers is
A) $600
B) $450
C) $440
D) $0
Answer: C
Q2) When two variables move in the same direction,they are said to be ________.
A) uncorrelated
B) equivalent
C) positively correlated
D) negatively correlated
Answer: C
Q3) To conduct a randomized experiment,researchers usually classify the participants into a ________.
A) study group and a control group
B) treatment group and a test group
C) study group and a treatment group
D) treatment group and a control group
Answer: D
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Chapter 3: Optimization: Doing the Best You Can
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Sample Questions
Q1) Which of the following statements is true?
A) It is easier for a person to optimize when he has less information.
B) Optimization implies choosing the best option from a set of alternatives.
C) People always successfully optimize given the limited information they have.
D) Optimization is an easy process, and all economic agents are perfect optimizers.
Answer: B
Q2) When optimizing using total value,if the ________ exceed the ________,Project A is chosen over Project B.
A) net benefits of Project A; net benefits of Project B
B) total benefits of Project B; total benefits of Project A
C) marginal costs of Project A; marginal costs of Project B
D) marginal benefits of Project B; marginal benefits of Project A
Answer: A
Q3) Refer to the scenario above.Which of the following is the optimum choice?
A) Apartment Very Close
B) Apartment Close
C) Apartment Far
D) Apartment Very Far
Answer: D
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Page 5
Chapter 4: Demand, supply, and Equilibrium
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Sample Questions
Q1) A fall in the price of flour,used in making cakes,is likely to ________ of cakes.
A) increase the supply
B) decrease the supply
C) increase the quantity supplied
D) decrease the quantity supplied
Q2) Which of the following could explain why there was a stampede at the Richmond International Raceway where 1,000 laptops were being sold at $50 each?
A) The demand for laptops is not very responsive to price.
B) The price of $50 per laptop was above the equilibrium price of laptops.
C) The quantity of laptops demanded at $50 was higher than the quantity supplied.
D) The people who bought the laptops at that price were those who valued laptops the most.
Q3) What is the difference between the following two situations?
a)A shortage in the market for lightbulbs
b)A surplus in the market for lightbulbs
Illustrate your answers with the help of suitable diagrams.
Q4) What are the key features of a perfectly competitive market?
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6
Chapter 5: Consumers and Incentives
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Q1) At all points below the midpoint of a downward-sloping,linear demand curve for a good,the value of the price elasticity of demand for the good is ________.
A) equal to infinity
B) greater than one, but less than infinity
C) less than one
D) equal to one
Q2) Suppose the demand for Big Macs at McDonald's restaurants in the United States has a price elasticity of demand of 0.6.Based on simple economic theory,will the company's revenues increase if Big Mac prices were raised? Would your pricing recommendation change if you learned the cross-price elasticity of demand for large soft drinks with respect to Big Mac prices is -1.8 and the cross-price elasticity of demand for large French fries with respect to Big Mac prices is -2.4? Explain.
Q3) Which of the following statements is true of the cross-price elasticity of demand?
A) The cross-price elasticity of demand between substitutes is zero.
B) The cross-price elasticity of demand between complements is zero.
C) The cross-price elasticity of demand between substitutes is negative.
D) The cross-price elasticity of demand between complements is negative.
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Chapter 6: Sellers and Incentives
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Sample Questions
Q1) A ________ is a payment or a tax break used as an incentive for an agent to complete an activity.
A) tariff
B) subsidy
C) wage
D) rent
Q2) Refer to the figure above.The firm is currently producing at point B.An increase in its capital may be represented by ________.
A) a movement to A
B) a movement to C
C) a movement to D
D) a movement to E
Q3) If a firm is maximizing profits in the short run at a level of output where Average total cost > Price > Average variable cost,then the firm is ________.
A) earning positive economic profits
B) breaking even (zero economic profits)
C) realizing losses but minimizing losses by continuing to produce
D) realizing losses and will minimize losses by shutting down
Q4) Differentiate between perfectly elastic supply and perfectly inelastic supply.
Q5) Is it possible for an input to have a negative marginal product?
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Chapter 7: Perfect Competition and the Invisible Hand
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Sample Questions
Q1) Refer to the table above.To achieve efficiency,which group of buyers should trade with which group of sellers?
A) All buyers and all sellers should trade.
B) Buyers 5-8 and sellers 1-4 should trade.
C) Buyers 1-5 and sellers 1-5 should trade.
D) Buyers 1-4 and sellers 5-8 should trade .
Q2) In a perfectly competitive market,if market price is higher than the average total cost of production,________.
A) firms will incur losses in the long run
B) firms will make profits in the long run
C) new firms will enter the industry
D) firms will exit the industry
Q3) Refer to the figure above.Which of the following statements is true?
A) Firm A produces at a lower marginal cost.
B) For a particular market price, Firm A will enjoy a greater producer surplus.
C) Firm B will have a higher reservation value than Firm A.
D) The profit-maximizing level of output of Firm B will be greater than that of Firm A at all prices.
Q4) Differentiate between double oral auctions and bilateral negotiations.
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Chapter 8: Trade
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Sample Questions
Q1) Points inside a production possibilities curve are ________.
A) inefficient, because more goods can be produced with the available resources
B) inefficient, because they represent the production of only one good C) efficient, because the combinations represented by those points are attainable D) efficient, because production is maximum at those points with the available resources
Q2) a)The demand for shoes in Cadbia is given by Qd = 300 25P,and the supply of shoes is given by Qs = 100 + 25P.If the world price of shoes is $8,will Cadbia import or export shoes?
b)The demand for dark chocolates in Cadbia is given by Qd = 300 10P,and the supply of dark chocolates is given by Qs = 100 + 10P.If the world price of dark chocolates is $6,will Cadbia import or export chocolates?
Q3) Refer to the scenario above.The gain in producer surplus from free trade at the world price of $6 per bushel is represented by area ________.
A) B
B) B + F
C) F + G
D) F + G + H + I
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10
Chapter 9: Externalities and Public Goods
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Sample Questions
Q1) The local community of the town of Montesia decides to plant trees every month as part of its green initiative.Which of the following is true?
A) The marginal social cost of planting trees is lower than the marginal private cost of planting trees.
B) The marginal private benefit from planting trees is higher than the marginal social benefit of planting trees.
C) There is an external benefit from planting trees.
D) There is a deadweight loss in planting trees.
Q2) Which of the following occurs if the production of a good gives rise to positive externalities?
A) The marginal social cost curve lies to the right of the supply curve.
B) The marginal social cost curve lies to the left of the supply curve.
C) The marginal social benefit curve lies to the right of the demand curve.
D) The marginal social benefit curve lies to the left of the demand curve.
Q3) The free-rider problem may arise in the case of ________.
A) public goods
B) private goods
C) club goods
D) inferior goods
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Page 11
Chapter 10: The Government in the Economy: Taxation and Regulation
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Sample Questions
Q1) An example of government failure is ________.
A) bureaucratic inefficiency
B) political corruption
C) the slowness of bureaucracies
D) all of the above
Q2) Refer to the scenario above.After the imposition of the tax,the government collects ________ in tax revenue,and there is a deadweight loss of ________ in the market.Explain your answer with a graph.
A) $500,000; $50,000
B) $450,000; $50,000
C) $450,000; $25,000
D) $400,000; $0
Q3) Refer to the above scenario.What is your average tax rate? Explain your answer.
A) 0 percent
B) 24.7 percent
C) 33 percent
D) 49.4 percent
Q4) When does the burden of a tax imposed on a good fall more heavily on sellers?
Page 12
Q5) Why are private enterprises more efficient than government enterprises?
Q6) Differentiate between the average tax rate and the marginal tax rate.
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Chapter 11: Markets for Factors of Production
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Sample Questions
Q1) Refer to the figure above.If it is optimal for the firm to hire 2 workers in the short run,then the wage per worker must be ________.
A) five times the price of output per unit
B) three times the price of output per unit
C) twice the price of output per unit
D) equal to the price of output per unit
Q2) The market price of physical capital is $10,and the market wage rate is $5.If a firm is optimally hiring an additional unit of physical capital,the value of the marginal product of physical capital is ________.
A) $1
B) $2
C) $10
D) $50
Q3) Which of the following is likely to lead to a leftward shift in the demand curve for labor in the petroleum extraction industry?
A) An increase in the wage rate
B) A decrease in the wage rate
C) An increase in the price of cars
D) An increase in the price of petroleum
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Page 14
Chapter 12: Monopoly
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Sample Questions
Q1) Which of the following is not a barrier to entry?
A) Economies of scale
B) Patent laws
C) Decreasing marginal costs
D) Licensing
Q2) If a monopolist decides to charge a higher price for its product,it will yield a ________ revenue per unit sold and ________ number of units sold.
A) lower; higher
B) lower; lower
C) higher; lower
D) higher; higher
Q3) Which of the following statements is true?
A) A monopolist has a vertical supply curve because it is a price-taker.
B) A monopolist's supply curve is the supply curve of the entire market.
C) A monopolist does not have a supply curve because its production decision is independent of price.
D) A monopolist has a horizontal supply curve because it is the only seller in the market.
Q4) What are the different types of price discrimination?
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15
Chapter 13: Game Theory and Strategic Play
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Sample Questions
Q1) Refer to the scenario above.Does Miguel have a dominant strategy?
A) Yes, it is location A.
B) Yes, it is location B.
C) Yes, it is location C
D) No, he does not have a dominant strategy.
Q2) Which of the following is likely to use the concepts of game theory?
A) Household budgeting
B) The exit decisions of competitive firms in the long run
C) International trade negotiation
D) The pricing decision of a firm operating in a competitive market
Q3) Refer to the table above.Which statement is true?
A) Alec and Ben both have a dominant strategy in this game.
B) Only Alec has a dominant strategy in this game.
C) Only Ben has a dominant strategy in this game.
D) Neither Alec nor Ben have a dominant strategy in this game.
Q4) Refer to the scenario above.This is an example of ________.
A) a zero-sum game
B) an extensive-form game
C) the free-rider problem
D) the tragedy of commons
Page 16
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Chapter 14: Oligopoly and Monopolistic Competition
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Sample Questions
Q1) Firm X is a monopolistic competitor that produces Good X.If the market for Good X were perfectly competitive,would it have charged the same price and earned the same amount of profit that it does now? Explain your answer with the help of relevant diagrams.
Q2) The long-run equilibrium for a perfectly competitive firm occurs at the minimum point of the ________.
A) total fixed cost curve
B) average fixed cost curve
C) average total cost curve
D) marginal cost curve
Q3) A duopoly (two-firm industry)is an example of ________.
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
Q4) Distinguish between a perfectly competitive firm and a monopolistically competitive firm on the basis of the long-run equilibrium price.
Q5) Is there any similarity between a perfectly competitive firm and a monopolistically competitive firm in the long run? Explain your answer.
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Chapter 15: Trade-Offs Involving Time and Risk
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Sample Questions
Q1) Refer to the scenario above.The net present value of the investment in Plan 4 is equal to ________.
A) $8,001
B) $556
C) $791
D) $3,737
Q2) If an individual deposits an amount at a compound interest rate of r percent per year for a time period of T years,then: ________.
A) Future value = (1 r) × (Principal)
B) Future value = (1 + r)/T × (Principal)
C) Future value = (1 r)/T × (Principal)
D) Future value = (1 + r) × (Principal)
Q3) To an economist,risky options ________.
A) are always bad options
B) are always good options
C) have costs and benefits that are fixed in advance
D) do not have costs and benefits that are fixed in advance
Q4) Define utility.What are individual units of utility called?
Q5) Why do preference reversals occur?
Q6) Define the discounted value of a future payment.
Page 18
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Chapter 16: The Economics of Information
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Sample Questions
Q1) A car insurance company pays 90 percent of the total damage in case of an accident.This is an example of ________.
A) a coinsurance
B) a dividend payment
C) a brokerage fee
D) a subsidy
Q2) Sarah initially used her cell phone mostly to make important business calls.However,when she was informed that henceforth her phone bills would be reimbursed by her employer,she started using her cell phone to make frequent calls to her friends and relatives.This behavior is an example of ________.
A) moral hazard
B) a negative externality
C) the prisoners' dilemma
D) the free-rider problem
Q3) Jack had an accident that caused $4,200 worth of damage to his car.He had to pay $500 for repairs,while his insurer paid the remaining amount.Why do insurance companies have such policies?
Q4) How can performance-based incentives help companies facing moral hazard?
Q5) Why do workers exert more effort when they are paid higher salaries?
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Chapter 17: Auctions and Bargaining
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Q1) Refer to the scenario above.Which of the following is an optimal bid for Molly?
A) $836
B) $750
C) $825.50
D) $700
Q2) Gary has won a laptop in an online auction.This implies that Gary's willingness to pay for the laptop was ________.
A) higher than its market price
B) lower than its market price
C) higher than that of the other bidders
D) lower than that of at least one bidder
Q3) A ________ person is indifferent to a bet that has zero expected value.
A) risk-neutral
B) risk-loving
C) risk-averse
D) rent-seeking
Q4) Rick and Kate want to go on a date.Rick wants to go to a rock concert,while Kate wants to watch a movie.Rick values going to the concert at $100,while Kate values watching a movie at $50.What is the equilibrium in this situation?
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Chapter 18: Social Economics
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Sample Questions
Q1) Refer to the scenario above.If Alice values fairness,________.
A) she will not accept any offer made by Robert
B) Robert should make the lowest possible offer to Alice
C) she will accept the offer when Robert offers $250
D) Robert should not play the game
Q2) Refer to the scenario above.Which of the following is likely to happen if the service center has a reputation for trustworthiness?
A) You will trust the mechanic, and he will cooperate.
B) You will trust the mechanic, but he will defect.
C) Neither of you will gain from trade.
D) Only the mechanic will gain.
Q3) As more people in a country started hoarding grain in fear of a shortage,a shortage actually occurred.This is an example of ________.
A) a positive externality
B) an information cascade
C) moral hazard
D) adverse selection
Q4) What are the two ways by which people can help charitable causes?
Q5) What role does information cascade play in job interviews?
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