Microeconomics Review K.Peren Arin

Question 1 Which of the following would NOT shift the demand curve for fish? a)An increase in consumer income b)A decrease in price of ham c)A change in tastes for Turkey d)A decrease in the price of fish

Question 2 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 a)demand, rise b)demand. fall c)supply, rise d)supply, fall

Question 3 Which of the following would shift the demand curve for Pepsi to the right? a)A consumer boycott b)A decrease in national income c)An increase in price of Coke d)A decrease in price of Pepsi

Question 4 A Vertical demand curve has a)unit elasticity b)infinite elasticity c)zero elasticity d)varying elasticity

Question 5 Which of the following is likely to have the lowest price elasticity of demand? a)An automobile b)A Ford c)A Ford Mustang d)A ford Mustang without AC

Question 6 The cross elasticity of demand between Coca- Cola and Pepsi-Cola is a)positive- that is, Coke and Pepsi are complements b)positive- that is, Coke and Pepsi are substitutes c)negative- that is, Coke and Pepsi are complements d)negative- that is, Coke and Pepsi are substitutes

Question 7 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: a)reduce costs b)b) lower the price c)c) raise the price d)d) not change the price

Question 8 If the minimum wage is above the equilibrium wage, a)anyone who wants a job at the minimum wage can find one b)the quantity demanded of labor will be greater than the quantity supplied c)the quantity demanded of labor will be equal the quantity of labor supplied d)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 For a firm that operates in a perfectly competitive market a)Marginal Revenue is below price b)as quantity produced rises, the price of final product must also rise c)the price of the product will decrease as production increases d)the price it charges for its product is not dependent on quantity sold

Question 11 When free entry is one of the attributes of a market structure, economic profits are a)eventually driven to zero b)negative for all firms c)sacrificed to excess capacity d)always positive e)greater than accounting profits

Question 12 When a firm has a natural monopoly, other firms do not enter the market because a)by definition natural monopolies are protected by the government b)the owners of natural monopolies have exclusive rights to key resources c)new firms cannot achieve the same low costs as the current monopolist d)None of the above is correct

Taxing a Monopoly X per year $ DXDX MR X ATC X MX X X0X0 P0P0 ATC 0 a b c d Economic Profits DX’DX’ MR X ’ PnPn i g f h X1X1 Economic Profits after unit tax

Question 13 Consider the market for CDs. The equilibrium price is $15 and the equilibrium quantity is 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.