D. both factors should bring the firm the same marginal product per dollar spent on them

MOCK EXAM IN MICROECONOMICS

(27 March 2010)

VARIANT 1

ANSWERS

Section 1. Multiple Choice Questions

Marking scheme: 1 point for a correct answer, -0.25 for a wrong answer, 0 if an answer has not been given.

1. Which of the following is not part of the opportunity cost of going on vacation?

A. The money you could have made if you had stayed home and worked.

B. The money you spent on food.

C. The money you spent on airplane tickets.

D. The money you spent on a Broadway show.

E. Everything is a part of the opportunity cost.

2. Masha buys 24 gallons of gasoline per month when the price is $1 per gallon, but only 16 gallons if the price rises to $1.50 per gallon. Within this range, her demand for gasoline is

A.	unitary elastic
B.	perfectly inelastic
C.	perfectly elastic
D.	Inelastic
E.	Elastic

3. Consider a good with a price elasticity equal to -1 at every point on its demand curve. Which of the following statements is correct?

A.	Total revenue always rises exactly in proportion to a drop in the price.
B.	Total revenue always rises exactly in proportion to a rise in the price.
C.	Total revenue does not change if the price changes.
D.	Total revenue drops to zero whenever the price rises.
E.	Total revenue always doubles if the price drops.

4. The more available substitutes there are for a good, the

A.	greater is the demand for the good
B.	lower is the demand for the good
C.	smaller the supply side response
D.	more elastic the demand for that good
E.	less elastic the demand for that good

5. The price elasticity of supply

A.	is a number between 0 and 1.
B.	measures the percent change in quantity supply as a result of a 1-percent change in price
C.	measures the percent change in quantity supplied as a result of a 1-percent change in cost.
D.	measures the shift in supply as the result of a price change
E.	measures the movement of a supply curve along a fixed demand curve

6.

Income = $ 100
Price per Ticket = $20
Price per Compact Disk $ 10
Quantity of	Quantity of
Concert Tickets	Compact Disks

Joe spends all of his money on concert tickets and compact disks. Table above shows his budget constraint when his income is $100. The price of a ticket is $20, while the price of a compact disk is $10. If Joe currently buys 3 tickets and would like to purchase a fourth, his opportunity cost would be

A.	1 compact disk
B.	$20
C.	$10
D.	2 compact disks
E.	4 compact disks

7. According to the assumption of consumer rationality, a consumer who prefers one head of broccoli to one head of cauliflower, one head of cauliflower to one package of brussels sprouts, and one

A.	package of brussels sprouts to one head of cabbage, must prefer a head of cabbage to a head of cauliflower
B.	package of brussels sprouts to one head of cabbage, must prefer a head of cauliflower to any other vegetable
C.	package of brussels sprouts to one head of cabbage, must prefer a package of brussels sprouts to a head of cauliflower
D.	package of brussels sprouts to one head of cabbage, must prefer a head of cauliflower to a head of cabbage
E.	head of cabbage to one package of brussels sprouts, must prefer the package of brussels sprouts to a head of broccoli

8.

Quantity of	Total
Apples	Utility

Table above shows the total utility that Jerry receives from consuming different numbers of apples per week. What is his marginal utility from the fourth apple?

A.
B.
C.
D.
E.

9. Ignoring all other goods, if Yong's marginal utility per pound of bread is 10 utils and per pound of cheese is 30 utils, his

A.	total utility would be maximized if the price per pound of cheese is triple the price per pound of bread
B.	total utility could be increased by buying more bread and less cheese
C.	total utility could be increased by buying more cheese and less bread
D.	total utility would be maximized if the price per pound of cheese is one-third the price per pound of bread
E.	marginal utility would be maximized if the price per pound of cheese is one-third the price per pound of bread

10. Suppose that the price of a pizza is $10 and that the price of a blouse is $30. At her present level of consumption, Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/4. To maximize total utility, she should

A.	buy more pizzas and fewer blouses
B.	buy fewer pizzas and more blouses
C.	continue to buy the same quantities of pizza and blouses
D.	spend more time consuming pizza
E.	spend more time buying blouses

11. If the price of a hamburgers increases, the substitution effect works to

A.	decrease the quantity of hamburgers supplied
B.	increase the number of hamburger buns demanded
C.	decrease the quantity of hamburgers demanded
D.	increase the number of hamburger buns supplied
E.	increase the quantity of hamburgers demanded

12. Housing is a normal good. That means

A.	that most people prefer to purchase their housing rather than rent it
B.	that most people tend to purchase more housing if its price falls.
C.	that people tend to purchase more housing if their income increases
D.	that most people live in houses
E.	the people tend to purchase more housing if its price rises

13. What is the effect of a decrease in the price of a normal good?

A.	The consumer will buy more of the good, but reach a lower indifference curve.
B.	The consumer will buy less of the good, but reach a higher indifference curve.
C.	The consumer will buy more of the good and reach a higher indifference curve.
D.	The consumer will buy the same quantity of the good and remain on the same indifference curve.
E.	The consumer will buy more of the good and remain on the same indifference curve.

14. Which of the following is a normative statement?

A. Firm A works more efficiently than firm B

B. A perfectly competitive firm needs not consider its competitors' actions to maximize profits

C. Substitution effect cannot be positive in a world of two goods, given usual assumptions

D. All of the above

E. None of the above

15. If the economy is operating on the production possibilities frontier,

A. Allocations in the economy are Pareto efficient.

B. It can attain some point outside the frontier if the government redistributes income in the economy.

C. There are no idle resources in the economy.

D. It does not imply that it has achieved production efficiency.

E. None of the above.

16. Consider Robinson and Friday producing tanks and fighter jets on their island. Both goods are needed to counteract rabbits that destroy their crops. Assume that only labor is a limiting resource in production. Unit labor requirements (in worker-days per unit) are given in the table below:

	Robinson	Friday
Tanks
Fighter jets

A. Robinson should produce both tanks and jets in some proportion, while Friday should only produce tanks

B. Robinson should produce both tanks and jets in some proportion, while Friday should only produce jets

C. Robinson should produce both tanks and jets in some proportion, while Friday should not take part in production

D. Robinson should specialize in tanks, leaving jets for Friday

E. Robinson should specialize in jets, leaving tanks for Friday

17. Mike is a tax accountant. He receives $80 per hour doing tax returns. He can type 5 000 characters per hour into spreadsheets. He can hire an assistant who types 2 500 characters per hour. Which of the following statements are true?

A. Mike should hire the assistant as long as he pays the assistant less than $25 per hour.

B. Mike should hire the assistant as long as he pays the assistant less than $40 per hour.

C. Mike should hire the assistant as long as he pays the assistant less than $50 per hour.

D. Mike should hire the assistant as long as he pays the assistant less than $80 per hour.

E. Mike should not hire an assistant.

18. Scarcity is correctly described by which of the following statements:

A. Scarcity exists if there are more uses for resources than can be satisfied at one time.

B. Scarcity exists if decisions must be made about alternative uses for resources.

C. Scarcity would not exist in a society in which people wanted to help others instead of themselves.

(A) Only A is true

B) Only B is true

(C) Only C is true

(D) A, B, and C are true

(E) A and C are true

19. Suppose you find $50. If you choose to use the $50 to go to the football game, your opportunity cost of going to the game is

A. nothing, because you found the money.

B. $50 (because you could have used the $50 to buy other things).

C. $50 (because you could have used the $50 to buy other things) plus the value of the time spent at the game.

D. $50 (because you could have used the $50 to buy other things) plus the value of the time spent at the game, plus the cost of the soda and hot dog you consumed at the game.

E. none of the above.

20. Consider a firm that buys its inputs (K and L) on competitive markets, and sells its output on a competitive market. K costs r per unit, and L costs w per unit. Assume that output and inputs are perfectly divisible, and the profit-maximizing output Y requires the firm to use positive amounts of K and L. Then we can assert that, if this firm actually maximizes profit:

A. the marginal productivities of capital and labor for that firm must be equal

B. the firm must spend equal amounts on capital and labor

C. the last unit of labor should bring this firm p/w units of output

D. both factors should bring the firm the same marginal product per dollar spent on them

E. C and D are correct

21. This graph illustrates the market demand for trinkets and the cost curves associated with the only existing technology of producing trinkets:

Judging by the graph, the trinket industry would most likely happen to be:

A. A natural monopoly

B. A monopoly

C. A monopolistically competitive industry

D. An oligopoly

E. A perfectly competitive industry

22. If every firm in a perfectly competitive industry would have the same technology characterized by constant returns to scale…

A. Individual LAC curves would look like hyperbolae

B. Such an industry would violate the Law of Diminishing Returns

C. A short-run increase in demand would not affect the equilibrium quantity

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