Microeconomics with Calculus Practice Exam
Course Introduction
Microeconomics with Calculus explores the foundational principles of microeconomic theory through the rigorous application of calculus. This course covers key topics such as consumer and producer behavior, market equilibrium, elasticity, utility maximization, cost minimization, and welfare analysis. Students learn to construct and analyze mathematical models representing economic decision-making, with a focus on deriving and interpreting marginal concepts and optimization techniques. Emphasis is placed on graphical and algebraic approaches to problem-solving, preparing students for advanced study in economics and quantitative analysis in real-world contexts.
Recommended Textbook
Microeconomics Theory and Applications with Calculus 4th Edition by Jeffrey M. Perloff(equations)
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Chapter 1: Introduction
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Q1) An automobile manufacturer is trying to make decisions about using more workers or more equipment.This belongs to the trade-off
A)Which goods and services to produce.
B)How to produce.
C)Who gets the goods and services.
D)Who produces the goods and services.
Answer: B
Q2) A microeconomic model CANNOT be used to
A)evaluate the impact of a price change on a firm's revenue.
B)predict the impact on a rise of the minimum wage on unemployment.
C)evaluate the fairness of the proposal to nationalize health insurance.
D)evaluate the effect of an increase in stadium size on the price of a sport team's tickets.
Answer: C
Q3) Economists tend to judge a model based upon
A)the reality of its assumptions.
B)the accuracy of its predictions.
C)its simplicity.
D)its complexity.
Answer: B
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Chapter 2: Supply and Demand
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Q1) Suppose the demand curve for a good shifts rightward,causing the equilibrium price to increase.This increase in the price of the good results in
A)a rightward shift of the supply curve.
B)an increase in quantity supplied.
C)a leftward shift of the supply curve.
D)a downward movement along the supply curve.
Answer: B
Q2) Use supply-and-demand graphs to explain why parking is free at the suburban shopping mall but one typically must pay to park when shopping downtown.
Answer: 11ea6e7c_8257_e5e5_8f54_33c9a9d3c099_TB3096_00 See the above figure.At the suburban shopping mall,the only cars typically on the lot belong to shoppers and employees.Mall lots are usually built to be large enough to handle peak crowds.For the relevant quantities,the supply curve is horizontal at a price of zero.As a result,the quantity demanded never exceeds the amount that is provided freely.Downtown,shoppers compete with a larger quantity and greater variety of drivers for parking spaces.The quantity that is available freely is not enough to accommodate all of those who wish to park downtown.
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Chapter 3: A Consumers Constrained Choice
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Q1) Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.What happens if Max's mother gives him 30 pounds of burger?
A)Max would have preferred receiving the dollar-value of the burger.
B)Max is indifferent between this gift and the dollar-value of the burger.
C)Max prefers this gift to the dollar-value of the burger.
D)None of the above.
Answer: A
Q2) Suppose Charley only purchases boardgames (B)and haircuts (H)with his income.If the price of boardgames increases by 100% while the price of haircuts increases by 300%,how will the MRT change (consider the budget constraint drawn on a graph with boardgames on the horizontal axis)?
Answer: Before the price change,the MRT = -p<sub>B</sub>/p<sub>H</sub>.After the price change,the MRT' = -(2)p<sub>B</sub>/(4)p<sub>H </sub>= MRT/2.The MRT is half.
Q3) If MRS > MRT,then the consumer is better off than at equilibrium.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Demand
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Q1) Why would you expect the demand for diamond jewelry to fall faster than plastic,costume jewelry when all incomes fall?
Q2) Consider a consumer that only purchases two goods,X and Y.The government wishes to collect revenue from taxing this consumer and is considering two policies.The first policy is to only tax good X.The second policy will tax both goods by the same percentage.Assume that the tax rates in each policy are selected such that they collect the same amount of revenue.Which policy will have a smaller reduction in the consumer's well-being? (Use a graph of indifference curves and budget constraints to illustrate your answer)
Q3) Before an uneven rise in prices Allan consumed five bread and six juice.After the price increase and with an increased welfare payment from the government Allan consumes four bread and seven juice.Does the government payment represent a true cost-of-living adjustment?
A)Yes,if the two consumption bundles lie on the same indifference curve.
B)Yes,if the second bundle yields more utility than the first.
C)No,the first bundle is clearly preferred.
D)Not enough information.
Q4) Alison consumes only tea and cookies and consumes them only in equal proportions.What is Alison's income elasticity of demand for tea?
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Chapter 5: Consumer Welfare and Policy Analysis
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Q1) The Equivalent Variation for an increase in the price of a good is
A)the reduction in a consumer's income necessary to harm the consumer by as much as the price increase.
B)the increase in a consumer's income necessary to eliminate the consumer's harm from a price increase.
C)the change in consumer surplus resulting from a price increase.
D)the amount of money a consumer would accept to be subject to a price increase.
Q2) Steve's utility for socks (q<sub>1</sub>)and other goods (q<sub>2</sub>)is given by U(q<sub>1</sub>,q<sub>2</sub>)= 10q<sub>1</sub><sup>.1</sup><sub> </sub>q<sub>2</sub><sup>.9</sup>
The price of the composite good is p<sub>2</sub><sub> </sub>= 1 and the price of a pair of socks is p<sub>1</sub> = 2.Steve's income is Y = 100.Every year,Steve's mom buys him 20 pairs of socks.Find the equivalent variation of the gift.What is the difference between the cost of the gift and the equivalent valuation cash amount?
Q3) The above figure shows an indifference map for a person's choices between leisure and consumption.Derive this person's labor supply curve for wage rates of $5,$10,and $15.
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Chapter 6: Firms and Production
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Q1) Over a five-year span,the ABC Co.reduced the amount of labor it hired.At the same time,the marginal productivity of labor increased.Which of the following COULD explain this observation?
A)the law of diminishing marginal returns
B)labor saving technical change
C)organizational innovation
D)All of the above
Q2) Returns to scale is a concept that operates
A)only in the short run.
B)only in the long run.
C)in both the long run and the short run.
D)in either the long run or the short run,but never both.
Q3) Suppose firms A and B each make T-shirts.Firm A's production function is q = L<sup>0.5</sup> K<sup>0.5</sup>.Firm B's production function is q = 1.2 L<sup>0.5</sup> K<sup>0.5</sup>.If the two firms each hire the same amounts of capital and labor,compare the two firms in terms of AP<sub>L</sub> and MP<sub>L</sub>.
Q4) Cobb-Douglas production functions can never possess varying returns to scale.
A)True
B)False
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Chapter 7: Costs
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Q1) If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average fixed cost for the 1000 widgets?
A)$2
B)$1.50
C)$1
D)$0.50
Q2) If a pharmaceutical firm is researching ways to improve its heartburn medicine and discovers a technique that will improve its allergy medicine,one could conclude that economies of scope exist in that industry.
A)True
B)False
Q3) A firm built an inventory of 16-bit chips for $50,000 last year.However,the introduction of 32-bit chips lowers the market price for 16-bit chips and the inventory can only be sold for $40,000 now.What is the sunk cost?
A)$50,000
B)$40,000
C)$10,000
D)$90,000
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Chapter 8: Competitive Firms and Markets
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Q1) The above figure shows the cost curves for a typical firm in a competitive market.If there are 200 identical firms,estimate the market quantity supplied when p = 4,8,and 10.
Q2) When the production of a good involves several inputs and inputs are used in fixed proportions,an increase in the cost of one input will usually cause total costs to
A)rise more than in proportion.
B)rise less than in proportion.
C)remain unchanged.
D)rise by the exact amount of the input price increase.
Q3) The "Got Milk?" advertising campaign is a good example of
A)advertising in a competitive market.
B)how advertising in a competitive market does not pay off for a single firm.
C)interest groups financed by the industry advertise for the whole industry.
D)All of the above.
Q4) If all conditions for a perfectly competitive market are met,
A)firms face sunk cost when entering the market.
B)firms demand curves are horizontal.
C)the market demand curve is horizontal.
D)the firms' demand curves are downward sloping.
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Chapter 9: Properties and Applications of the Competitive Model
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Q1) Suppose that all firms in a constant-cost industry have the following long-run cost curve:
c(q)= 4q<sup>2</sup> + 100q + 100
The demand in this market is given by Q<sup>D</sup> = 1280 - 2p.Suppose the number of firms in the market is restricted to 80
a.Derive the supply curve with this restriction.Find the market equilibrium price and quantity with the restriction.
b.If firms are allowed to buy and sell these permits in an open market,what will be the rental price of permits? Will firm's that own permits make profit? Briefly explain.
c.How much deadweight loss is generated by the permit system? Provide a graph showing the region of this deadweight loss.
d.Suppose the government abandons the permit system and simply imposes a fixed fee on firms in the market.If the fee is set equal to the permit price you found in c. ,what will be the equilibrium price,quantity,number of firms and deadweight loss?
Q2) The above figure shows the demand and supply curves in the market for milk.If the government imposes a quota at 500 gallons,calculate the deadweight loss.
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Chapter 10: General Equilibrium and Economic Welfare
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Q1) When comparing partial-equilibrium effects to general-equilibrium effects,one can conclude that
A)general-equilibrium effects are always larger.
B)partial-equilibrium effects are always larger.
C)the effects are of equal size.
D)one cannot determine before the fact which effect is greater.
Q2) Consider a society consisting of just a farmer and a tailor.The farmer has 10 units of food but no clothing.The tailor has 20 units of clothing but no food.Suppose each has the utility function U = F C.The price of clothing is always $1.If the price of food is $3,does a competitive equilibrium exist? If not,what will happen to the price of food?
Q3) Equity and efficiency can be achieved simultaneously through competition.
A)True
B)False
Q4) Any competitive equilibrium is Pareto efficient because with a competitive equilibrium,
A)the marginal rates of substitution are equal for all consumers.
B)the price line is the contract curve.
C)mutual gains from trade exist.
D)the slope of the price line equals the ratio of the MRS for all consumers.
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Chapter 11: Monopoly and Monopsony
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Q1) Which of the following would be most able to act like a monopsonist?
A)a hospital in a small isolated town
B)a hospital in a very big city
C)a law firm in Washington,D.C.
D)a computer software firm in Silicon Valley
Q2) Under monopsony,the wage rate
A)equals the marginal product of labor.
B)equals the marginal revenue product of labor.
C)is less than the marginal revenue product of labor.
D)is greater than it would be under perfect competition.
Q3) Which of the following average cost functions suggests the presence of a natural monopoly?
A)AC = 2
B)AC = 100/Q + 2
C)TC = 100/Q + 2Q
D)All of the above
Q4) The Lerner Index is derived from the profit-maximizing condition of a firm.
A)True
B)False
Q5) Explain Microsoft Windows' monopoly positions in terms of network externalities.
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Chapter 12: Pricing and Advertising
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Q1) For a theme park a two-tier tariff can include a positive admission price and a zero per-ride fee.
A)True
B)False
Q2) When a firm has a monopoly in a market and also perfectly price discriminates,total welfare
A)is maximized.
B)is lower than in a perfectly competitive market.
C)is higher than in a perfectly competitive market.
D)is minimized.
Q3) Charging a higher price for a motel room to customers with dogs or cats than to customers with no pets is most likely an example of
A)first-degree price discrimination.
B)second-degree price discrimination.
C)third-degree price discrimination.
D)actual cost differences.
Q4) Explain why a monopoly that knows the demand curve of identical consumers can set a two-part tariff with the lump sum tariff equal to the total amount of potential consumer surplus.
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Chapter 13: Game Theory
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Q1) The above figure shows a payoff matrix for two firms,A and B,that must choose between a high-price strategy and a low-price strategy.The Nash equilibrium in this game
A)does not exist.
B)occurs when both firms set a low price.
C)occurs when both firms set a high price.
D)occurs when firm A sets a high price and firm B sets a low price.
Q2) In the ultimatum experiment,what are the usual outcomes?
A)Proposer proposes to give the minimum positive amount to the responder in all the rounds.
B)Proposer and responder are rational all the time.
C)Proposer proposes to give about 30~40% of total amount to the responders.
D)Proposer proposes to give 60~70% of total amount to the responders
Q3) Suppose market demand is p = 10 - Q.Firms have a fixed cost of five and no marginal cost.If firm A is the incumbent,can it deter the entry of its rival,firm B?
Q4) How can a firm be made better off by limiting its options?
Q5) All Nash equilibria consist of Dominant Strategies
A)True
B)False
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Chapter 14: Oligopoly and Monopolistic Competition
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Q1) If there are 2 identical firms in a market that choose the quantity they produce,total welfare is the highest when there is a cartel.
A)True
B)False
Q2) The above figure shows the reaction functions for two pizza shops in a small isolated town.The Stackelberg leader will produce
A)25 pizzas.
B)50 pizzas.
C)66.7 pizzas.
D)100 pizzas.
Q3) Oligopoly differs from monopolistic competition in that an oligopoly includes A)product differentiation.
B)barriers to entry.
C)no barriers to entry.
D)downward-sloping demand curves facing the firm.
Q4) The three models of oligopolies,Cournot,Stackelberg and Bertrand,all assume firms independently choose the quantity of output to produce.
A)True
B)False
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Chapter 15: Factor Markets
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Q1) The amount of labor a firm employs depends on
A)the market wage.
B)the market price for the good produced.
C)Both A and B.
D)None of the above.
Q2) Four banks are offering the same interest rate of 4%.Where do you invest?
A)Bank A compounds interest on a yearly basis.
B)Bank B compounds interest on a monthly basis.
C)Bank C compounds interest on a daily basis.
D)I am indifferent between banks.
Q3) If a firm is a price taker in both the labor market and the output market,it will
A)earn zero economic profit in the short run.
B)hire labor until the marginal product of labor equals zero.
C)hire labor until the marginal revenue product equals the output price.
D)hire labor until the marginal revenue product equals the wage rate.
Q4) Explain how continuing technical progress may cause the price of scarce,exhaustible resources to fall over time.
Q5) Explain why a firm may rationally make an investment when its cash flow from the investment is not positive each year.
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Chapter 16: Uncertainty
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Q1) If a person is risk averse,then she has negative marginal utility of wealth.
A)True
B)False
Q2) Explain why insurance companies usually do not offer earthquake insurance.
Q3) Which of the following games involving the roll of a single die is a fair bet?
A)Bet $1 and receive $1 if 3 or 4 comes up.
B)Bet $1 and receive $1 if 3,4,or 5 comes up.
C)Bet $1 and receive $4 if six comes up.
D)None of the bets is a fair bet.
Q4) What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100,and 80% of the time returns $50? Explain.
Q5) John's utility from an additional dollar increases more when he has $1,000 than when he has $10,000.From this,we can conclude that John
A)is risk averse.
B)is risk loving.
C)is risk neutral.
D)has a negative marginal utility of wealth.
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Chapter 17: Property Rights, Externalities, Rivalry, and Exclusion
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Q1) The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.According to Coase's Theorem,which of the following scenarios is most likely to lead to the socially optimal level of pollution?
A)The firm owns the river and there are a thousand surrounding neighbors.
B)The firm owns the river and there is just one nearby neighbor.
C)The river is jointly owned by one thousand surrounding neighbors.
D)The firm owns the river,and therefore produces the social optimum no matter what.
Q2) You are having a party and one of your guests lights up a cigar without asking.Explain why this creates an externality.
Q3) Two neighboring farmers must each decide whether to contribute to a fence that separates their properties.The fence costs a total of $20.Both farmers currently have a profit of $30 each.With a fence to keep each farmer's animals from wandering onto the other's property,both farmers would experience a $15 rise in profits.Draw the payoff matrix and discuss the possible outcomes.
Q4) Explain why the optimal amount of pollution is often not zero.
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Chapter 18: Asymmetric Information
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Q1) Signals can help prevent adverse selection as long as a false signal is costly to the person sending it.
A)True
B)False
Q2) Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when
A)a warranty on a lemon is costly to the seller.
B)warranties are offered on all cars.
C)warranties are only offered on lemons.
D)a warranty on a good car is a false signal.
Q3) Joe wants to achieve the highest position possible with the XYZ Co.During the interview,he tells them he is capable of performing many difficult tasks.The company feels there is an 10% chance he is lying.Given the payoff matrix in the above figure,what job level will the company offer to Joe? Why?
Q4) The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.The percent of all cars that are lemons is .What value of is necessary for all cars to be sold?
Q5) Explain how product liability laws can reduce adverse selection.
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Chapter 19: Contracts and Moral Hazards
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Q1) In the presence of asymmetric information,a piece-rate contract
A)achieves production efficiency.
B)can lead to agents producing more output than would occur under a fixed-rent-paid-to-the-principal contract.
C)is impossible to write.
D)will result in the principal earning all of the profit.
Q2) Suppose employees pay a bond of $1,000 to an employer.The gain from shirking is $400.Monitoring devices have been installed so that there is a 50% chance of being caught if you are shirking.The company is considering the installation of additional monitoring devices to increase the chance of catching a shirker to 100%.They feel this is needed to deter all shirking.What is your recommendation to the company? Explain.
Q3) Explain how more than one possible state of nature affects contract choices.
Q4) If an additional dollar spent on monitoring would reduce shirking by 10 minutes,then the firm will increase the worker's wage by $1 if this caused
A)shirking to increase by less than 10 minutes.
B)shirking to decrease by more than 10 minutes.
C)shirking to decrease by less than 10 minutes.
D)monitoring to become unnecessary.
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