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Microeconomics Review

Microeconomics Review. K.Peren Arin. Question 1. Which of the following would NOT shift the demand curve for fish? An increase in consumer income A decrease in price of ham A change in tastes for Turkey A decrease in the price of fish. Question 2.

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Microeconomics Review

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  1. Microeconomics Review K.Peren Arin

  2. Question 1 • Which of the following would NOT shift the demand curve for fish? • An increase in consumer income • A decrease in price of ham • A change in tastes for Turkey • A decrease in the price of fish

  3. 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 • demand, rise • demand. fall • supply, rise • supply, fall

  4. Question 3 • Which of the following would shift the demand curve for Pepsi to the right? • A consumer boycott • A decrease in national income • An increase in price of Coke • A decrease in price of Pepsi

  5. Question 4 • A Vertical demand curve has • unit elasticity • infinite elasticity • zero elasticity • varying elasticity

  6. Question 5 • Which of the following is likely to have the lowest price elasticity of demand? • An automobile • A Ford • A Ford Mustang • A ford Mustang without AC

  7. Question 6 • The cross elasticity of demand between Coca-Cola and Pepsi-Cola is • positive- that is, Coke and Pepsi are complements • positive- that is, Coke and Pepsi are substitutes • negative- that is, Coke and Pepsi are complements • negative- that is, Coke and Pepsi are substitutes

  8. 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: • reduce costs • b) lower the price • c) raise the price • d) not change the price

  9. Question 8 • If the minimum wage is above the equilibrium wage, • anyone who wants a job at the minimum wage can find one • the quantity demanded of labor will be greater than the quantity supplied • the quantity demanded of labor will be equal the quantity of labor supplied • the quantity demanded of labor will be less than the quantity supplied

  10. Question 9 • Economies of scale occur when • Average fixed cost increases as output increases • Average total cost declines as output increases • Average variable cost increases as output increases • Average fixed cost declines as output increases

  11. Question 10 • For a firm that operates in a perfectly competitive market • Marginal Revenue is below price • as quantity produced rises, the price of final product must also rise • the price of the product will decrease as production increases • the price it charges for its product is not dependent on quantity sold

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

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

  14. Taxing a Monopoly $ MXX EconomicProfits EconomicProfits after unittax c a P0 ATCX Pn i f g d h b ATC0 DX DX’ MRX X per year X0 X1 MRX’

  15. Question 13 • Consider the market for CDs. The equilibrium price is $15 and the equilibrium quantity is 1000. 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.

  16. 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.

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