Microeconomics Mock Questions

For any particular good, an increase in the price of a complement would most likely
result in?

Consider the following statements:
Statement I: If close substitutes are easily available for a particular good, the price
elasticity of demand for that good cannot be identified.
Statement II: If a relatively large proportion of a person’s income is spent on a
particular good, the price elasticity of demand for that good is most likely
relatively high.
Which of the following is true?

Consider the following statements:
Statement I: If the price elasticity of demand for a good equals -1.25, an increase in
price will result in a decrease in total revenue.
Statement II: If a decrease in price leads to a decrease in total revenue, demand for
the good is price elastic.
Which of the following is true?

When a rent ceiling (maximum price) is imposed below the equilibrium market
price, which of the following is most likely?

Which of the following is least likely regarding indifference curves?

Robert’s MRSxy is given by 2.5. If Good Y is on the y axis and Good X is on the x axis,
the slope of the indifference curve is closest to?

This question addresses the budget constraint: The amount of Good A that a
consumer would have to give up in order to consume 1 more unit of Good B is given
by:

For any particular good, an decrease in the price of a complement would most likely result in?

Consider the following statements:
Statement I: The availability of close substitutes for a particular good A has no effect on the price elasticity of demand for that good A.
Statement II: If a comparatively small proportion of a person’s income is spent on a particular good, the price elasticity of demand for that good is comparatively high (i.e. very elastic).
Which of the following is most likely true?

Consider the following statements:
Statement I: If the price elasticity of demand for a good equals -2.5, an increase in price will result in a decrease in total revenue.
Statement II: If a decrease in price leads to an increase in total revenue, the demand for that good is price elastic.
Which of the following is most likely true?

When a price floor is imposed above the equilibrium market price, which of the following is most likely true?

Which of the following statements is most likely true??

Peter’s MRSxy is given by 1.5. If Good Y is on the y axis and Good X is on the x axis, the slope of the indifference curve is closest to?

This question addresses the budget constraint: The amount of Good A that a consumer would have to give up in order to consume one more unit of Good B is given by:

Which one of the following statements is correct?

If a monopolist faces the inverse demand function P = 50 - 5Q, which of the following statements is true?
I. The equation of the average revenue curve is AR(Q) = 50 – 5Q.
II. The marginal revenue curve is twice as steep as the average revenue curve.
III. For outputs less than 5, marginal revenue is positive, for outputs more than 5, marginal revenue is negative.

Suppose that a monopolist faced demand P = 120 - 4Q and has constant marginal cost MC = 30. If this monopolist engages in first degree price discrimination, total output will equal?

In a “homogeneous goods” duopoly, two firms, Rooler Inc. and AFG are fierce competitors. The market demand is given by P = 200 – 0.9Q1 – 0.9Q2. Q1 denotes Rooler Inc.’s output, and Q2 denotes AFG’s output. The marginal cost of each firm is 17.

a) Given this market demand function, what is Rooler Inc.’s profit-maximising quantity if AFG produces 60 units (in 1,000s)?

In a “homogeneous goods” duopoly, two firms, Rooler Inc. and AFG are fierce competitors. The market demand is given by P = 200 – 0.9Q1 – 0.9Q2. Q1 denotes Rooler Inc.’s output, and Q2 denotes AFG’s output. The marginal cost of each firm is 17.

Determine Rooler Inc.’s so-called “reaction function”.

In a “homogeneous goods” duopoly, two firms, Rooler Inc. and AFG are fierce competitors. The market demand is given by P = 200 – 0.9Q1 – 0.9Q2. Q1 denotes Rooler Inc.’s output, and Q2 denotes AFG’s output. The marginal cost of each firm is 17.

Compute the Cournot equilibrium quantities and price in this market.

Your employer, a pharmaceutical company, has a patent on a specific antibiotic. The inverse demand function for that drug is as follows: P = 800 – 4Q. Marginal cost is constant and equal to 100.
Use the inverse elasticity pricing rule IEPR to determine the profit maximising price and quantity. Clearly indicate your method and approach to the solution.

Which-one(s) of the following statement(s) is/are correct?

I. Under the conditions of perfect competition, the supply function calculates the quantity a supplier is willing to produce in function of the selling price as well as the cost of the input factors needed for production, and the cost of complementary goods and/or substitutes.
II. Given everything else is held constant, an increase in the cost of labour leads to upward shift of the supply curve. Mathematically, this corresponds to a higher intercept.
III. An increase in the cost of the input factors has no effect on the supply curve because the market price decides, which quantity a firm is willing to supply

Which-one of the following statements is correct?

Given are the following denotations:
MPL : marginal product of labour
MPK : marginal product of capital
PL : price of labour
PK : price of capital

Which one of the following statements is correct?

In your new job, you are responsible for the cost management in the production of a newly designed garden swing seat. Your predecessor has already worked on this project before you. She identified the following supply function:
QSx = –220 + 2.8Px – 10 W
QSx : quantity supplied
Px : selling price for one unit
W : wage per hour

Explicate the meaning of the term “+ 2.8Px “ in the above quoted supply function.

In your new job, you are responsible for the cost management in the production of a newly designed garden swing seat. Your predecessor has already worked on this project before you. She identified the following supply function:
QSx = –220 + 2.8Px – 10 W
QSx : quantity supplied
Px : selling price for one unit
W : wage per hour

Identify the supply function for an hourly wage of $25.

Given is the supply function of a specific firm:

QSx = –400 + 8Px

Given is the supply function of a specific firm:
QSx = –400 + 8Px

If the unit price is $200, how big is the quantity supplied and the corresponding producer surplus?

Given is the supply function of a specific firm:
QSx = –400 + 8Px

Explain the term “producer surplus”.

Assume that an individual supplier has the following supply function:
QSx = –200 + 4Px – 5 W
Where: QSx : quantity supplied
Px : selling price for one unit
W : wage per hour
Which of the three functions below represents the aggregate market supply curve? Assume that the wage per hour is 20, and that the market consists of 10 identical firms.

Which-one(s) of the following statement(s) is/are correct?

I. Consumer choice theory can be defined as the branch of microeconomics that relates consumer demand curves to production and cost theory.
II. A consumption bundle, or consumption basket, is a specific combination of goods and services that a consumer would like to consume.
III. Under reasonable assumptions, it is possible to come up with a rule that translates the quantities of goods in different baskets into a number. That assignment is called the utility function of that consumer

Rowena and John both have identical bundles of good A and good B, however they are NOT on the same indifference curve.
The marginal rate of substitution MRSA for B for Rowena is 5, whereas the MRSA for B for John is 0.2 . They both agree to exchange one unit of A for one unit of B.
Which of the following statements is correct?

Which-one of the following statements is correct? 2 points
A travel agent (operating in imperfect competition) offering package tour holidays to Iceland is considering a price reduction of 500 francs on two-week all-inclusive vacations to Iceland from 10,000 francs to 9,500 francs. The number of monthly bookings is, as a consequence, expected to increase from 5 to 7. Therefore, the marginal revenue earned per additional booking amounts to:

Which-one of the following statements is correct? 2 points
A company introduces a new product. The product is patented, therefore they are the only supplier. Given a constant marginal cost of 10, and a price elasticity of demand of -1.11, the unit price, according the inverse elasticity pricing rule (IEPR), should be:
IEPR: (P* – MC*) / P* = -1/Q,P

Which-one(s) of the following statement(s) is/are correct? 2 points
I. Price discrimination (charging different prices for different consumers) offers a firm with market power an opportunity to capture more surplus.
II. Block pricing is an example of third-degree price discrimination. So is the splitting of the price charged to consumers into a subscription and a usage charge.
III. Price discrimination (charging different prices for different consumers) offers a firm, given certain conditions are met, an opportunity to capture more surplus. Yet, this is not true for firms that have no information about so-called reservation prices (i.e., a consumer’s maximum willingness to pay for that unit) or about how the price- elasticity of demand differs across consumers.

Suppose, a monopolist faces the following demand curve: P = 150 – 2Q. The monopolist has two plants, which each have different marginal cost curves. They are as follows:
Marginal cost curve of plant 1: MC1 = 8 + 16Q1
Marginal cost curve of plant 2: MC2 = 40 + 5Q2
a) Find the monopolists optimal total quantity and price.

Suppose, a monopolist faces the following demand curve: P = 150 – 2Q. The monopolist has two plants, which each have different marginal cost curves. They are as follows:
Marginal cost curve of plant 1: MC1 = 8 + 16Q1
Marginal cost curve of plant 2: MC2 = 40 + 5Q2

Find the optimal division of the monopolist’s quantity between its two plants.

Which one of the following statements is correct?

In a “homogeneous goods” duopoly, two firms, River Inc. and Forest Inc. are fierce competitors. The inverse market demand is given by P = 200 – 0.9Q. This can be rewritten as P = 200 – 0.9Q1 – 0.9Q2 where Q1 denotes River Inc.’s output, and Q2 denotes Forest Inc.’s output. The marginal cost for each firm is 17.
a) Given this inverse market demand function, what is River Inc.’s profit-maximising quantity if Forest Inc. produces 60 units? 2

In a “homogeneous goods” duopoly, two firms, River Inc. and Forest Inc. are fierce competitors. The inverse market demand is given by P = 200 – 0.9Q. This can be rewritten as P = 200 – 0.9Q1 – 0.9Q2 where Q1 denotes River Inc.’s output, and Q2 denotes Forest Inc.’s output. The marginal cost for each firm is 17.

Determine River Inc.’s so-called “reaction function

In a “homogeneous goods” duopoly, two firms, River Inc. and Forest Inc. are fierce competitors. The inverse market demand is given by P = 200 – 0.9Q. This can be rewritten as P = 200 – 0.9Q1 – 0.9Q2 where Q1 denotes River Inc.’s output, and Q2 denotes Forest Inc.’s output. The marginal cost for each firm is 17.

Compute the Cournot equilibrium quantities and price in this market.