Course Introduction
Microeconomic Theory Final Exam
Questions
Microeconomic Theory examines the decision-making processes of individuals, households, and firms as they allocate scarce resources among competing uses. The course explores fundamental concepts such as supply and demand, consumer choice, production and cost, market structures (including perfect competition, monopoly, and oligopoly), and welfare analysis. Emphasizing rigorous analytical tools and mathematical models, students will learn to critically analyze how incentives and constraints influence economic behavior, predict outcomes in various market environments, and assess the efficiency and equity of different economic policies. This foundation prepares students for advanced study and real-world application of microeconomic principles.
Recommended Textbook
Microeconomics 4th Edition by David Besanko
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Page 2
Chapter 1: Analyzing Economic Problems
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Q1) The definition of an exogenous variable is
A) a variable whose value is determined within the model under study.
B) a variable whose value is determined outside the model under study.
C) a variable whose value is determined through constrained optimization.
D) a variable whose value is determined through comparative statics.
Answer: B
Q2) Every society must answer
A) Which variables are exogenous and which are endogenous?
B) Who will receive the goods and services?
C) What goods and services will be produced, how much will be produced, who will produce them and who will receive them?
D) How centralized should government bureaucracy be?
Answer: C
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Chapter 2: Demand and Supply Analysis
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Q1) Income elasticity of demand measures the responsiveness of quantity demanded to changes in A) price.
B) income.
C) demand substitutes.
D) demand complements.
Answer: B
Q2) All else equal,an increase in the price of bicycle helmets,would tend to
A) reduce the demand for cars
B) increase the demand for bicycles
C) reduce the demand for bicycles
D) cause more riders to walk to work.
Answer: C
Q3) What is the elasticity of the following demand curve? QP<sup>2</sup> = 100
Answer: \(\varepsilon\)<sub>Q,P</sub> = -2.
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Chapter 3: Consumer Preferences and the Concept of Utility
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Q1) Sally likes Jim twice as much as she likes Bob.This is an example of A) ordinal preferences.
B) cardinal preferences.
C) transitivity.
D) diminishing marginal utility.
Answer: B
Q2) 53.If two goods are perfect substitutes,then
A) the marginal rate of substitution is constant.
B) the indifference curves are straight lines.
C) the indifference curves are "L-shaped."
D) both a) and b) are true.
Answer: D
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Page 5
Chapter 4: Consumer Choice
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Q1) Using the information in problem 3 above and letting Z = the quantity of pizza per months and T = the number of tacos per month,the equation for the budget line is best represented by
A) 10 = 10Z + 5T
B) 1000 = 20Z + 10T
C) 50 = 10Z + 5T
D) 1000 = A + B
Q2) Given the expression min <sub>(x,y)</sub> expenditure P<sub>x</sub> x + P<sub>y</sub>y subject to: U(x,y) = U*,the endogenous variables are
A) x and P<sub>x</sub>.
B) only U*.
C) x and y.
D) P<sub>x</sub> and P<sub>y</sub>.
Q3) Revealed preferences tells us that if basket costs less than basket but the consumer chooses instead of ,then we know that A) is strictly preferred to . B) is at least as preferred to C) is strictly preferred to D) is as least as preferred to .
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Page 6
Chapter 5: The Theory of Demand
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Q1) We could use the term "bandwagon effect" to describe which of the following situations?
A) I get great satisfaction from collecting Soviet-era posters because few people have them.
B) I purchase the same e-mail software package as all of my friends and family so that we can exchange both mail and advice on technical information.
C) I purchase more chocolate bars when the price of chocolate bars falls.
D) I decide to purchase a good because a politician suggests it.
Q2) If a consumer's preferences for two goods,say food and clothing,are such that as income decreases,consumption of food increases but consumption of clothing decreases,we can say that
A) food and clothing are inferior goods.
B) food is a normal good and clothing is an inferior good.
C) food is an inferior good and clothing is a normal good.
D) food and clothing are both normal goods.
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Chapter 6: Inputs and Production Functions
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Q1) *The average productivity of the fifth worker is A) 20.
B) 28.
C) 30.
D) 140.
Q2) Which of the following is true?
A) The Cobb-Douglas production function is given by the general formula Q = AL<sup> </sup>K<sup> </sup> and the constant elasticity of substitution is equal to 0.
B) The Cobb-Douglas production function is given by the general formula Q = AL<sup> </sup>K<sup> </sup> and the constant elasticity of substitution is equal to 1.
C) The Cobb-Douglas production function does not exhibit a constant elasticity of substitution.
D) The Cobb-Douglas production function always takes the form Q = K<sup>2 </sup>L<sup>2</sup>.
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Chapter 7: Costs and Cost Minimization
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Q1) The short-run is
A) a time period in which all input levels are fixed.
B) a time period in which at least one input level is fixed.
C) three months.
D) a time period in which no input levels are fixed.
Q2) When isocost lines shift outward from the origin,it represents
A) increasing levels of expenditure on the inputs to the production process.
B) increasing sunk costs
C) increasing opportunity costs
D) decreasing levels of expenditure on the inputs to the production process.
Q3) The cost-minimization problem of the firm is to
A) maximize output subject to a given cost constraint.
B) minimize total cost.
C) minimize average cost.
D) minimize total cost of producing a particular level of output.
Q4) The cost-minimization problem of the firm is to
A) minimize total costs.
B) minimize average costs.
C) minimize total cost of producing a particular amount of output.
D) maximize output subject to a cost constraint.
Page 9
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Chapter 8: Cost Curves
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Q1) When the price of all inputs increase by the same percentage,
A) the firm's total cost curve will rotate upward by a higher percentage if the firm's production technology exhibits decreasing returns to scale.
B) the firm's total cost curve will rotate upward by the same percentage.
C) the firm's total cost curve will rotate upward by a higher percentage if the firm's production technology exhibits increasing returns to scale.
D) the firm's total cost curve will remain unchanged since the cost-minimizing combination of inputs is unchanged.
Q2) Economies of ______ occur when a single firm can produce two products together for a lower total cost than two firms could produce those same products separately,one at each firm.
A) scale.
B) scope.
C) efficiency.
D) output.
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Chapter 9: Perfectly Competitive Markets
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Q1) In a constant cost industry,which of the following statements is true?
A) The long run market supply curve and the long run firm supply curve are both horizontal.
B) While the long run market supply curve is horizontal, the long run firm supply curve generally is upwards-sloping.
C) The long run market supply curve and the long run firm supply curve are both upwards-sloping.
D) While the long run market supply curve is upwards-sloping, the long run firm supply curve is horizontal.
Q2) Which of the following is not an assumption of a perfectly competitive market?
A) Fragmented industry
B) Differentiated product
C) Perfect information
D) Equal access to resources
Q3) Producer surplus is
A) always equal to zero for a competitive firm in long run equilibrium.
B) always greater than zero for a competitive firm in long run equilibrium.
C) defined as the area below the supply curve and above the price.
D) defined as the area above the supply curve and above the price.
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Page 11
Chapter 10: Competitive Markets
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Q1) With an acreage limitation program (compared with the initial situation of no program),which of the following statements is true?
A) The impact on the government's budget is zero, consumer surplus increases and producer surplus decreases.
B) The impact on the government's budget is positive, consumer surplus decreases and producer surplus increases.
C) The impact on the government's budget is negative, consumer surplus increases and producer surplus decreases.
D) The impact on the government's budget is negative, consumer surplus decreases, producer surplus increases, and there is a deadweight loss.
Q2) Acreage limitations are used by the government because
A) They induce less deadweight loss than cash transfers to farmers.
B) they raise the market price of an agricultural product without the surpluses associated with price supports.
C) the government wishes to lower agricultural prices.
D) they are an effective way to feed poor people.
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Chapter 11: Monopoly and Monopsony
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Q1) An increase in demand for a monopolist will cause the
A) profit-maximizing price to decrease when marginal cost decreases as quantity increases.
B) profit-maximizing price to increase when marginal cost decreases as quantity increases.
C) profit-maximizing price to decrease when marginal cost increases as quantity increases.
D) profit-maximizing price to stay constant regardless of the shape of the marginal cost curve.
Q2) A monopsonist maximizes profit when
A) marginal revenue equals marginal cost.
B) marginal revenue product of labor equals marginal cost.
C) marginal revenue product is set equal to zero.
D) its marginal revenue product of labor equals its marginal expenditure on labor.
Q3) If a monopolist's marginal cost shifts upward,
A) total revenue will remain unchanged.
B) total revenue will increase.
C) total revenue will fall.
D) total revenue may rise or fall depending on the slope of the demand curve.
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Page 13
Chapter 12: Capturing Surplus
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Q1) A block tariff is a form of
A) first-degree price discrimination
B) second-degree price discrimination
C) third-degree price discrimination
D) tying
Q2) During the winter months,the price of natural gas is high.During the summer months,the price of natural gas is low.This could be an example of
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) bundling.
Q3) Bundling can increase the seller's profits when customers have different _______ for the two products and when the firm __________________.
A) supply curves; captures surplus.
B) supply curves; cannot price discriminate.
C) tastes; cannot price discriminate.
D) tastes; can price discriminate.
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Chapter 13: Market Structure and Competition
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Q1) In the Cournot model of oligopoly,
A) each firm chooses simultaneously and non-cooperatively how much to produce to maximize its own profit.
B) each firm chooses simultaneously and non-cooperatively its own product's price to maximize its own profit.
C) one firm acts as a quantity leader, choosing its quantity first, while all other firms act as followers, choosing their quantities second and in reaction to the first.
D) each firm makes its profit-maximizing decision while considering the entire market demand, the same as a monopolist.
Q2) In the Cournot model,the curve that traces out the relationship between the market price and a firm's quantity when rival firms hold their outputs fixed is called
A) Reaction function
B) Best response
C) Residual demand curve
D) Cournot equilibrium
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Chapter 14: Game Theory and Strategic Behavior
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Q1) A dominant strategy
A) is a strong strategy.
B) guarantees a Nash equilibrium.
C) is a strategy that is better for a player than any other the player might choose, regardless of the other player's strategy.
D) depends on the other player's strategy.
Q2) Consider a repeated prisoner's dilemma game.The likelihood of a cooperative outcome rises when
A) they value payoffs in future periods much less than they value payoffs in the current period.
B) Interactions between the players are frequent.
C) Cheating is difficult to detect.
D) The one-time gain from cheating is large in comparison to the eventual cost of cheating.
Q3) *In Game 5 above,
A) Player A choosing A1 and Player B choosing B1 is a Nash equilibrium.
B) Player A choosing A2 and Player B choosing B1 is a Nash equilibrium.
C) Player A choosing A1 and Player B choosing B2 is a Nash equilibrium.
D) there are no Nash equilibria in pure strategies.
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Page 16
Chapter 15: Risk and Information
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Q1) Which of the following statements is false?
A) Some probabilities result from laws of nature; some reflect subjective beliefs about risky events.
B) The probability of any particular outcome is between 0 and 1.
C) The sum of the probabilities of all possible outcomes can exceed one.
D) The sum of the probabilities of all possible outcomes must equal exactly one.
Q2) The expected value of a lottery is
A) the average payoff you would get from the lottery if the lottery were repeated many times.
B) the sum of the probability-weighted squared deviations of the possible outcomes of the lottery.
C) a measure of risk preference.
D) the amount an individual would be willing to pay to enter a lottery.
Q3) A risk premium is
A) a payment to an insurer by a policy-holder who faces a potential loss.
B) equal to the purchase price of an insurance policy.
C) the necessary difference between the expected value of a lottery and the payoff of a sure thing to make the decision maker indifferent between the lottery and the sure thing.
D) the difference between the expected value and the variance of a lottery.
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Page 17
Chapter 16: General Equilibrium Theory
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Q1) The prices of substitute goods tend to be ____________.
A) positively correlated.
B) inversely related.
C) unrelated.
D) related to the prices of substitute goods.
Q2) The input contract curve represents:
A) All consumption good allocations in an Edgeworth box that are exchange efficient.
B) all input allocations in an Edgeworth box for inputs that are input efficient.
C) All possible combinations of consumption goods that can be produced in an economy given the economy's available supply of inputs.
D) the different combinations of capital and labor inputs that will produce a given level of output for a particular good.
Q3) The prices of complementary goods tend to be _______________.
A) positively correlated.
B) inversely related.
C) unrelated.
D) related to the prices of substitute goods.
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Chapter 17: Externalities and Public Goods
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Q1) To move closer to the social optimum when a negative externality exists, the cost to society of the externality should be
A) incorporated/added on to the price so that demand reflects the true social costs.
B) calculated per unit and producers taxed accordingly with a goal of making the supply curve reflective of the marginal social cost of the externality.
C) minimized by forcing producers of the externality to shut down when they produce a negative externality.
D) minimized by subsidizing the producers of the externality.
Q2) ________________ states that regardless of how property rights are assigned with an externality,the allocation of resources will be will be efficient when the parties can costlessly bargain with each other.
A) Bargaining power
B) Opportunity cost
C) The Coase Theorem
D) Common Property
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