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micro final practice
Terms in this set (25)
under perfect price discrimination, a firm charges a price equal to
individuals reservation price
Consider the following production function q (L, K) = K^0.5 L^0.6.
Does this function exhibit increasing, decreasing, or constant returns to scale?
increasing > output more than doubles
Ratio of the marginal products of the inputs is called
marginal rate of technical substitution (MRTS)
shows all possible combinations of inputs that can be used, holding total cost constant ; Isocost line shows: Cost = wL +rK
The long run is:
a time period in which all input decisions are variable (can be changed)
The assumption of monotonic preferences implies that indifference curves must:
Indifference curves must NOT have a positive slope
A consumer's reservation price is
the maximum amount a consumer is willing to pay
Suppose a firm uses 2 inputs, lemons and sugar, to produce lemonade. Assume that the production function for lemonade is strictly convex in lemons and sugar. As the firms adds more and more lemons to production, holding the level of sugar constant, the
the Incremental increase in the output of lemonade will decline
Which of the following examples most illustrates moral hazard
A) The tendency that the market for used cars will have more low-quality cars than high-quality cars.
B) A person engages in more risky behavior after obtaining health insurance.
C) Once hired by a firm, an employee shirks on the job since the manager cannot perfectly observe their productivity.
D) A firm provides a warranty on a product to signal high-quality.
a person engages in more risky behavior AFTER obtaining health insurance
Suppose a firm is producing at a level above the profit-maximizing output level. Assume they are operating in a perfectly competitive market. Which of the following must be true?
A) Marginal revenue is less than marginal cost
B) Marginal revenue is more than marginal cost
C) Total revenue is less than total cost
D) Average revenue is less than average cost
Marginal revenue is less than marginal cost; MR < MC
Assume that X-boxes is measured on the horizontal axis (x) and Yeezies on the vertical axis (y). Income doubles, the budget line will:
A) Become flatter.
B) Become steeper.
C) Shift outward.
D) Shift inward.
Suppose that the total cost of producing t-shirts can be represented as TC = 10 +q + 3q^2. what is the average variable cost?
the average variable cost is 1 + 3q
A firm sells an identical product to two groups of consumers, and and wishes to engage in third-degree price discrimination. Suppose at its current prices, and , the marginal revenue from group is larger than the marginal revenue from group . In order to maximize profits, the firm should alter prices such that
A) Decrease MRx and increase MRy
B) Decrease MRx and decrease MRy
C) Increase MRx and increase MRy
D) Increase MRx and decrease MRy
Decrease MRx and increase in MRy
Block pricing practices for kilowatt hours is an example of
A) First-Degree Price Discrimination.
B) Second-Degree Price Discrimination.
C) Third-Degree Price Discrimination.
D) Monopolistic Pricing.
block pricing practices for kilowatt hours is an example of second-degree price discrimination
A set of strategies which are mutual best responses to one another is called a
Suppose Hanna consumes only chocolate and coffee. Her marginal utility at her current level of coffee consumption is 100 (she really loves coffee). Her marginal utility at her current level of chocolate consumption is 50. Suppose the price of coffee is $2 and the price of chocolate is $1. In order to maximize her utility, how should Hanna change her consumption bundle?
A) Consume more chocolate and less coffee
B) Consume less chocolate and more coffee
C) Cannot determine with the given information
D) Hanna is already maximizing her consumption bundle
Hanna is already maximizing her consumption bundle
Which oligopoly model should be used when firms simultaneously compete on quantities?
D) Monopolistic Competition
Cournot oligopoly model: produce homogenous goods; simultaneously decide Quantity ;fixed
TRUE or FALSE: In the short-run, when price drops below cost, the firm should always exit the market since they will be making a negative profit.
Which of the following best describes Market power?
The number of firms in a market.
B) The ability of a firm to practice parallel pricing.
C) The ability of goods to affect the price of unrelated goods.
D) The firm's ability to determine price.
The firms ability to determine price
In a perfectly competitive market, which of the following is true?
A) All buyers and sellers determine their own prices.
B) Each individual firm faces a perfectly elastic demand curve.
C) There are few buyers and sellers.
D) Marginal revenue is equal to price plus the incremental change in price multiplied by the number of units sold.
in a perfectly competitive market,
Each individual firm faces a perfectly elastic demand curve
If the utility function for an individual is a constant and downward sloping line, what is true regarding gather preferences?
A) and are perfect complements.
B) and are both bads.
C) and are perfect substitutes.
D) The individual's preferences are strictly convex.
X and Y are perfect substitutes
In a monopoly market, where the inverse demand function is and , what is the profit maximizing level of output for the monopolist?
D) None of the above
1. multiple the p=60-Q by Q (inverse demand function given)
2.Distribute the Q to all when multiplied
3. Take Derivative and subtract the exponent
4. Get all Q on one side by adding/subtracting
5. Divide by Q to get the Q alone
Q= end result of Q will be the profit maximizing level of output for the monopolists
Suppose good X is placed on x axis and good y is placed on y axis. which is the following is the slope of the budget line?
Slope of the budget line = price ratio
price ration= x axis/y axis
During periods of high unemployment, why don't we see wages decreasing?
A) The employees will threaten to strike if wages decrease.
B) To provide workers with an incentive to not shirk and get fired.
C) To keep worker morale high during an economic recession.
D) To not be perceived as unfair for changing the wage rate.
To provide workers with an incentive to not shirk and get fired
The price elasticity of coffee supply in Sweden is 0.75. If the price of coffee falls by 4%, what is the expected percentage change in the quantity of coffee supplied?
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