INTERMEDIATE MICROECONOMICS (ECON 021)
FINAL EXAM
August/07/2020
STUDENT NAME: ___________________________________ SCORE_________/100
PART I: multiple choice (only 35 questions) 30 marks
Read each question carefully and select the best response. Tick or circle the appropriate response
that relates. There are 42 questions in this part. Answer only 30 questions.
1. If a person’s utility doubles when their income doubles, then that person is risk
a. averse. b. neutral. c. seeking. d. There is not enough information given in the question to determine an answer.
2. Strategy A has an expected value of 10 and a standard deviation of 3. Strategy B has an expected value of 10 and a standard deviation of 5. Strategy C has an expected value of 15
and a standard deviation of 10. Which one of the following statements is true?
a. A risk averse decision maker will always prefer A to B, but may prefer C to A. b. A risk neutral decision maker will always prefer C to A or B. c. A risk seeking decision maker will always prefer C to A or B. d. d. All of the above are correct.
3. The coefficient of variation measures
a. the risk per unit of expected payoff. b. the risk-adjusted expected value. c. the payoff per unit of risk. d. a decision maker’s risk-return tradeoff.
4. A strategy that yields an expected monetary payoff of zero is called a
a. risk-neutral strategy. b. b. fair game. c. zero-sum game. d. certainty equivalent.
5. Which of the following circumstances in an industry will result in a Nash equilibrium? a. All firms have a dominant strategy and each firm chooses its dominant strategy. b. All firms have a dominant strategy, but only some choose to follow it. c. All firms have a dominant strategy, and none choose it. d. None of the above is correct.
ATTEMPT QUESTIONS IN EACH PART: (Time Allowed: 3
hours)
6. Which of the following describes a Nash equilibrium?
a. A firm chooses its dominant strategy, if one exists. b. Every competing firm in an industry chooses a strategy that is optimal given the
choices of every other firm.
c. Market price results in neither a surplus nor a shortage. d. All firms in an industry are earning zero economic profits.
7. In game theory, a situation in which one firm can gain only what another firm loses is called a
a. nonzero-sum game. b. prisoners dilemma. c. zero-sum game. d. cartel temptation.
8. A game that involves interrelated decisions that are made over time is a
a. sequential game. b. repeated game. c. zero-sum game. d. nonzero-sum game.
9. A game that involves multiple moves in a series of identical situations is called a
a. sequential game. b. repeated game. c. zero-sum game. d. nonzero-sum game.
10. The market demand curve for a perfectly competitive industry is QD = 12 – 2P. The market supply curve is QS = 3 + P. The market will be in equilibrium if
a. P = 6 and Q = 9. b. P = 5 and Q = 2. c. P = 4 and Q = 4. d. P = 3 and Q = 6.
11. A natural monopoly refers to a monopoly that is defended from direct competition by
a. economies of scale over a broad range of output. b. a government franchise. c. control over a vital input. d. a patent or copyright.
12. The short-run supply curve of a perfectly competitive firm
a. is equal to that portion of the short-run marginal cost curve that is above the average variable cost curve.
b. is equal to that portion of the short-run marginal cost curve that is above the average total cost curve.
c. is equal to that portion of the short-run average total cost curve that is above the average variable cost curve.
d. None of the above is correct.
13. A monopolist produces 14,000 units of output and charges $14 per unit. Its marginal revenue is $8, its marginal cost is $7 and rising, its average total cost is $10, and its average
variable cost is $9. The monopolist should
a. increase output, which will result in an increase in the firm’s positive economic profit.
b. increase output, which will reduce the firm’s economic losses. c. shut down, which will reduce the firm’s economic losses. d. decrease output, which will result in an increase in the firm’s positive economic
profit.
14. A competitive firm maximizes profit by choosing quantity at which marginal cost or
average total point.
a. Cost equals the price average total
b. Marginal cost equal average total cost
c. Marginal cost equals average total cost
d. Average total cost is at its minimum
15. What does the invisible hand in the market do?
a. Nothing. It doesnt work
b. Show customers and producers which product to choose
c. Create a hostile environment for the demand and supply
d. Help demand and supply reach equilibrium
16. Which of these causes market failure
a. Free market
b. Public goods
c. Demand and supply
d. Equilibrium
17. A linear, downward sloping demand curve is
a. Inelastic at some points and elastic at others
b. Elastic
c. Unit elastic
d. Inelastic
18. The price of reganmian rises from 5 to 7 and the quantity demanded falls from 100 to 80
units. Calculated with the midpoint method, the elasticity is
a. 1/5
b. ½
c. 2
d. 5
19. Which statement is true about producer surplus
a. The amount a seller is paid for a good plus the sellers cost of providing it
b. The amount a seller is paid for a good minus the sellers cost of providing it
c. The value of everything a smaller must give up to produce a good
d. The extra money producers make extra
20. Which statement about deadweight loss is true:
a. The fall in total surplus that that results from a market distortion
b. Welfare spending is consumption
c. Deadweight is not a binding price ceiling
d. A larger at the equilibrium quantity and price more than any other quantity and
price.
21. Which of these qualify as an example of a negative externality
a. Increasing demand
b. Net welfare loss
c. Air pollution
d. Increasing supply
22. An example of an implicit cost of production would be
a. The cost of raw materials for producing milk in factory
b. The cost of delivery bikes in a business that does not make a lot of deliveries
c. The income a businessman could have earned working for another person
d. All the above
23. Economic profit is equal to
a. Total revenue the opportunity cost of producing goods and services
b. Average revenue the average cost of producing the last unit of a good or service.
c. Total revenue the accounting cost of producing goods and services
d. Total revenue the explicit cost of producing goods and services
24. In the short-run, which of the following always gets smaller as output increases?
a. Average fixed cost.
b. Average variable cost.
c. Short-run average cost.
d. Short-run marginal cost.
25. Which of the following statements about a firm’s average cost curves is false?
a. Its SAC curve will stay put if the price of an input that is fixed in the short run
increases.
b. Its SAC curve will stay put if the price of an input that is fixed in the short run
increases.
c. Its SAC curve will generally lie above its LAC curve.
d. Its LAC curve will shift upwards if new firms enter its industry and there are
external diseconomies of scale.
26. Which of the following will cause the average fixed cost curve of making cigarettes to shift?
a. A $5 million penalty charged to each cigarette maker.
b. A $1 per pack tax on cigarettes.
c. A $3 per hour wage increase in tobacco industry.
d. An increase in the demand for cigarettes.
27. Which of the following factors does not affect the slope and position of a consumer’s budget line between two products, A and B?
a. The shape and position of the consumer’s indifference curves.
b. The price of A.
c. The price of B.
d. The consumer’s income.
28. To see whether a firm is making an economic profit, which of the following should be
deducted from its revenue?
a. Its explicit costs only.
b. Its explicit costs plus depreciation.
c. Its implicit costs only.
d. Its explicit costs and its implicit costs.
29. Which of the following factors does not help to explain why most indifference curves between consumer products slope down to the right and are curved rather than straight?
a. The principle of diminishing marginal utility.
b. The fact that both products concerned are regarded as desirable.
c. The fact that most pairs of products are not perfect substitutes.
d. The fact that the further an indifference curve is from the origin, the more total
utility it represents.
30. Under which of the following circumstances would the incidence of a specific tax fall wholly on consumers?
a. Demand is perfectly elastic. b. Supply is perfectly elastic c. Both demand and supply have unit elasticity. d. Under all circumstances.
31. Which of the following statements about profit maximization is true? a. It is something that all firms actually do. b. It is something which economists believe that all firms actually do. c. It is what economists believe is the most common aim of firms. d. It means that no firms ever make losses.
32. Which of the following statements about a price ceiling is false?
a. The number of buyers who gain from the ceiling is smaller than the original number
of buyers.
b. The ceiling creates an excess demand.
c. The ceiling generates losers as well as gainers.
d. To have any effect, the price ceiling must be set at a higher level than the original
market price.
33. Suppose the government introduces a prohibition on the supply or purchase of some substance. Assuming that some suppliers and some users ignore the law, which of the
following could not occur?
a. The price might rise.
b. The price might stay the same.
c. The price might fall.
d. There would be no price because the market would disappear underground.
34. The ability of companies to get in and out of a market over time means that in the long run,
a. The demand curve is more elastic
b. The demand curve is less elastic
c. The supply curve is more elastic
d. The supply curve is less elastic
35. Which of the following does the principle of diminishing marginal utility say about what happens when a consumer consumes more of a product?
a. The consumer’s total utility will be unaffected.
b. The consumer’s total utility will diminish.
c. The consumer’s marginal utility will diminish.
d. The consumer’s marginal utility will become negative.
36. Which of the following statements about a firm which is a price-taker is false? a. The firm will sell its product at the going market price.
b. The demand curve faced by the firm is downward sloping.
c. The demand curve faced by the firm is horizontal even though the market demand curve
is downward sloping.
d. The firm would sell nothing if it set a higher price than the market price.
37. Which of the following statements about barriers to entry is false? a. They help to make a market contestable. b. They may include a fear of sunk costs. c. They may include a lack of know-how. d. They may include the well-known brand names of existing firms.
38. Which of the following statements about types of market or industry is false?
a. There are many firms in both perfect competition and monopolistic competition.
b. Costs must be kept as low as possible in both monopolistic competition and
monopoly.
c. There may be homogeneous products in both perfect competition and oligopoly.
d. There are barriers to entry in both oligopoly and monopoly.
39. The tendency for low-quality cars to drive high quality cars out of the used car market is an example of
a. hedging. b. adverse selection. c. portfolio analysis. d. moral hazard
40. A profit-maximizing perfect competitor is in short-run equilibrium with an output of 100 per
day. Which of the following events would not cause it to alter its output in the short-run?
a. A change in the demand for the product it makes. b. A change in the number of other firms in its industry. c. A change in the price of a fixed input. d. A change in the price of a variable input.
41. A monopolized market is in long-run equilibrium when a. zero economic profit is earned by the monopolist. b. production takes place where price is equal to long-run marginal cost and long-run
average cost.
c. production takes place where long-run marginal cost is equal to marginal revenue and price is not below long-run average cost.
d. All of the above are correct. 42. If the product of MEIZU Phone production yields a negative externality, then the social-cost
curve lies above the supply curve, and the socially optimal quantity is ______than the
equilibrium quantity
a. Greater
b. Below
c. Less
d. Above
PART II: Answer ALL questions in this part. (Total = 30 Marks)
QUESTION 1:
(5 Marks) Briefly explain two ways policy makers can reduce or control the effects of negative
externalities.
QUESTION 2
(6 Marks) What are three externalities that SUV cars bring? Explain them briefly.
QUESTION 3
(5 Marks) Explain the following
i. Diminishing Marginal Product of Labor and its characteristics
ii. Three causes of a shift in the labor demand curve
QUESTION 4
(4 Marks) Define the following terms and state the type of curve(s) they are related to:
(i) Consumer surplus
(ii) Producer surplus
QUESTION 5
(6 Marks) For each of the following, is the industry perfectly competitive? Referring to market
share, standardization of the product, and/or free entry and exit, explain your answers.
(i). Aspirin
(ii). Alicia Keys concerts
(iii) SUVs
QUESTION 6
(4 Marks) You have the information shown in the accompanying table about a firms costs.
Complete the missing data and analyze the information in the table. .
Quantity TC MC ATC AVC
0 $20 –
1 $20
2 $10
3 $16
4 $20
5 $24
PART III; Answer Questions ONE and TWO and any other one question. Ensure to show all
steps in your calculations. Total = 30 MARKS
QUESTION 1 (15 Marks)
(i) Use the three equations below to find the demand function QD = a +bP + cY
110 = a + 50b + 20c (1)
115 = a + 50b + 30c (2)
95 = a + 60b + 30c (3)
(ii) If QS = 3P 100 determine the equilibrium function. And find the equilibrium P and Q when Y
= 20. [Clue: use your idea of algebra to solve the question]
QUESTION 2 (15 Marks)
The information about the costs of a firm is given below.
Output AFC, $ AVC, $
1 50.00 100.00
2 25.00 80.00
3 16.67 66.67
4 12.50 65.00
5 10.00 68.00
6 8.37 73.33
7 7.14 80.00
8 6.25 87.50
Answer the following questions:
(i) What is the firm’s fixed cost?
(ii) If the firm produces five units, what is the average total cost?
(iii) What is the total cost of producing four units?
(iv) If the firm closes down and produces no output, what will be its total cost?
(v) If the firm decides to increase its output from 6 to 7 units, by how much will its total cost
increase?
QUESTION 3 (10 Marks)
(i). Fill in the missing entries in the following cost table:
OUTPUT AVERAGE
TOTAL COST
AVERAGE
FIXED COST
AVERAGE
VARIABLE COST
MARGINAL
COST
1 160 40
2 95
3 30
4
5 47 15
6 23
(ii). By definition, the elasticity of total cost is the ratio of marginal cost to average cost; for the
total cost function TC = 0.4Q 2 + 40, find the elasticity of total cost at Q=5, Q=10, and Q=20
units of output.
QUESTION 4 (10 Marks)
Fan Bing Bing is international student at Birmingham City University. She is trying to figure out
how to supplement the study allowances of £500 a week. She is also considering a part-time job at a
gas station. The wage is £50 per hour. Her utility function is U(C, L) = C*L where C is her
consumption measured in SEK and L hier leisure measured in hours. The amount of leisure time
that she has left after allowing for necessary activities is 50 hours a week.
a. What is the monetary value of Fang Bing Bing’s endowment?
b. Draw Fan Bing Bing’s budget set (horizontal axis: leisure and vertical axis: consumption).
c. Set up the maximisation problem and decide optimal consumption and leisure.
d. Let Y = study allowance and T = total amount of leisure time. Express her demand for
consumption as a function of study allowance and wage.
e. Express her supply function for labour as a function of study allowance and wage.
f. How many hours would Fang Bing Bing’s work if she did not receive any study allowance?
QUESTION 5 (10 Marks)
Leather is sold at Mensah House in Guangzhou, a perfectly competitive industry. The industry
short-run supply curve (marginal cost curve) is P = MC = 3Q, where Q is measured in millions of
hides per year. The demand for leather hides is given by Q = 60/7 ? P/7.
(i) Find the equilibrium market price and quantity.
(ii) Suppose that the leather tanning releases bad stuff into waterways. The external marginal cost is
$4/hide. Calculate the socially optimal level of output and price for the tanning industry
QUESTION 6 (10 Marks)
Muchani spends ¢150 per month on coffee and buns at CUSSAs students cafeteria. A cup of coffee
costs ¢15 and a bun costs ¢10.
a) Write the equation for Muchanis cafeteria budget constraint and draw it in a diagram.
b) Assume that Muchani never drinks coffee without eating one bun, and never eats buns without
drinking coffee. How much of each will she consume? Draw some of her indifference curves.
c) What do we call goods that are always consumed in the same proportion?
Applied Sciences
Architecture and Design
Biology
Business & Finance
Chemistry
Computer Science
Geography
Geology
Education
Engineering
English
Environmental science
Spanish
Government
History
Human Resource Management
Information Systems
Law
Literature
Mathematics
Nursing
Physics
Political Science
Psychology
Reading
Science
Social Science
Home
Blog
Archive
Essay
Reviews
Contact
google+twitterfacebook
Copyright © 2019 HomeworkMarket.com
