Advanced Microeconomic Analysis
Midterm Exam
Course Introduction
Advanced Microeconomic Analysis delves into the theoretical foundations and quantitative techniques underlying modern microeconomics. The course covers consumer and producer theory, general equilibrium, welfare economics, game theory, and information economics, emphasizing rigorous mathematical modeling and logical reasoning. Students will analyze market mechanisms, strategic interactions, and resource allocations, applying advanced calculus, optimization, and proof-based approaches. The aim is to deepen understanding of individual and firm behavior, market structure, and policy implications, preparing students for research or professional work in economics and related fields.
Recommended Textbook
Microeconomics Theory and Applications 11th Edition by Edgar K. Browning
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Page 2
Chapter 1: An Introduction to Microeconomics
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Sample Questions
Q1) A decline in income is shown on the budget line by:
A)a rotation of the budget line such that its horizontal intercept is larger than its vertical intercept.
B)a parallel shift in the budget constraint toward the origin.
C)a rotation in the budget line so it intersects the vertical axis closer to the origin.
D)a change in the relative price ratio.
Answer: B
Q2) Along an indifference curve,if the MRS of food (F)for clothing (C)is 1F/2C,this means the consumer:
A)has a stronger preference for clothes than for food.
B)would be willing to give up 1 unit of food for 2 units of clothing,and would be better off with the exchange.
C)would be willing to give up 1 unit of food for 2 units of clothing,but his or her total utility will not increase.
D)would be willing to give up 2 units of food for 1 unit of clothing.
Answer: C
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Chapter 2: Supply and Demand
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Sample Questions
Q1) If the average household income in some town increased from $50,000 to $60,000,and the their expenditure on housing increased from $1,400 per month to $1,484 per month,the income elasticity of demand for housing is:
A)-0.4
B)0.3
C)1.0
D)1.2
Answer: B
Q2) When there is an excess supply of a good,there is a(n):
A)downward pressure on price because firms hold out for the best price they can get.
B)downward pressure on price because firms accumulate unwanted inventories.
C)upward pressure on price because firms hold out for the best price they can get.
D)upward pressure on price because firms accumulate unwanted inventories.
Answer: B
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Chapter 3: The Theory of Consumer Choice
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Sample Questions
Q1) After spending $5 million developing a new MP3 player,you discover that a competitor is about to introduce a new model similar to yours at a lower per unit price.The $5 million development cost:
A)should be factored into your decision on whether or not to introduce your new MP3 player.
B)should be ignored in your decision on whether or not to introduce your new MP3 player.
C)should not be included while determining the opportunity cost of this investment. D)should be considered as fixed cost for the firm.
Answer: B
Q2) The explicit cost of production equals:
A)opportunity cost minus sunk cost.
B)implicit cost minus sunk cost.
C)economic cost minus opportunity cost.
D)opportunity cost minus implicit cost.
Answer: D
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Chapter 4: Individual and Market Demand
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Sample Questions
Q1) Which of the following methods is not generally relied upon to estimate demand?
A)Experimentation such as lowering the price of a product
B)Surveys by mail,telephone,or focus groups
C)Regression analysis on existing data
D)Comparison with competitors' sales
Q2) A consumer is willing to pay a maximum of $5 for the first pretzel,$4 for the second pretzel,$3 for the third pretzel,$2 for the fourth pretzel,$1 for the fifth pretzel and nothing for the sixth pretzel.If the price per unit of pretzel is $2,calculate the net benefit to the consumer.
A)$6
B)$14
C)$5
D)$8
Q3) The price-consumption curve traces the optimal market baskets for:
A)different income levels.
B)different prices of the good.
C)different consumers.
D)different years.
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Chapter 5: Using Consumer Choice Theory
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Sample Questions
Q1) The welfare effect of an excise subsidy indicates that:
A)the consumer is better off than without the subsidy.
B)the consumer is indifferent between an excise subsidy and a cash grant.
C)excise subsidies should not be used by the government.
D)government officials know what is better for low-income families than the families themselves.
Q2) Which of the following statements is true?
A)Consumers are better off with a fixed-quantity subsidy than an equal-cost voucher system.
B)Voucher systems will not increase the quantity consumed of the subsidized good.
C)With a fixed-quantity subsidy consumers will consume more of other goods.
D)Fixed-quantity subsidies and voucher systems can both place the consumer on a higher indifference curve.
Q3) In the intertemporal consumer choice model,an increase in _____ will alter the slope of the budget line.
A)saving
B)the interest rate
C)future income
D)borrowing
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Page 7
Chapter 6: Exchange, Efficiency, and Prices
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Sample Questions
Q1) If the MRS at an initial market basket between books [B] and Frisbees [F] is 6B/1F for Dave and 3B/1F for Diane,then:
A)mutually beneficial trades are not possible.
B)Diane will accept 4 books from Dave.
C)Diane will accept 2 books from Dave.
D)Dave will accept 2 Frisbees from Diane.
Q2) When the marginal rates of substitution for two consumers differ:
A)the consumers' indifference curves are tangent.
B)consumers will exchange goods and can end up anywhere inside the area bounded by their indifference curves.
C)consumers will exchange goods and will end up on the contract curve inside the area bounded by their indifference curves.
D)consumers will exchange goods and will end up on the contract curve,but not necessarily inside the area bounded by their indifference curves.
Q3) What would you expect to see in the market for healthcare if the government decided that healthcare allocation would be done on the basis of altruism? Why?
Q4) Explain why a competitive equilibrium produces an efficient allocation of goods.
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8
Chapter 7: Production
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Sample Questions
Q1) The slope of a ray from the origin to the total product curve measures _____.
A)the marginal rate of technical substitution
B)the marginal product of the variable factor
C)the average product of the variable factor
D)the maximum output
Q2) Suppose that at a point on an isoquant,the following information is true: L increases by 5;K falls by 3;MP<sub>L</sub> = 4,then MP<sub>K</sub> must be:
A)3.33.
B)0.67.
C)1.67.
D)6.67.
Q3) If a firm doubles its usage of all inputs,and output also doubles,the production function is said to exhibit:
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)increasing marginal returns to a fixed factor of production.
Q4) Define and then derive the expression for the marginal rate of technical substitution.
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Page 9
Chapter 8: The Cost of Production
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Sample Questions
Q1) If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and the average total cost is $6,how many units are being produced?
A)10
B)100
C)1,000
D)1,100
Q2) Which of the following is true of learning by doing?
A)It results from economies of scale.
B)It results from an increase in the price of inputs.
C)It results from the substitution of one input by a costlier input.
D)It results from a firm's cumulative output experience.
Q3) Average fixed cost [AFC] is the:
A)horizontal distance between average total cost [ATC] and average variable cost [AVC].
B)vertical distance between ATC and AVC.
C)horizontal distance between ATC and the Y-axis.
D)vertical distance between ATC and the X-axis.
Q4) Explain why the long-run average cost curve is usually U-shaped although all inputs are variable in the long run?
Page 10
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Chapter 9: Profit Maximization in Perfectly Competitive Markets
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Sample Questions
Q1) Refer to Figure 9-4.At the output level OB the total fixed cost is equal to _____.
A)TBOV
B)KTVP
C)GKPS
D)GTVS
Q2) The short-run supply curve for the firm operating in a perfectly competitive industry is:
A)its marginal cost curve.
B)its marginal cost curve above the minimum of average variable cost.
C)its marginal cost curve above the minimum of average total cost.
D)the average variable cost curve above average revenue curve.
Q3) Refer to Figure 9-4.The total revenue for the firm at the output level OB is _____.
A)OVTB
B)OSGB
C)OPKB
D)GTVS
Q4) Explain the difference between diminishing marginal returns to factor and a decreasing-cost industry.
11
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Chapter 10: Using the Competitive Model
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Sample Questions
Q1) Refer to Figure 10-5.Which of the following should necessarily be true?
A)FG = BC
B)0D = EH
C)EH = 0C + CQ
D)BC = EF
Q2) Consider two increasing cost competitive industries (A and B)having identical demand curves.However,the supply curve faced by industry A is more inelastic than the supply curve of industry B.Which of the following is true if a per-unit excise tax is levied on the output of both the industries?
A)The consumers of industry A's product will bear a greater burden of the tax than the producers.
B)The consumers of industry A's product will bear a smaller burden of the tax than the producers.
C)The consumers of industry B's product will bear a smaller burden of the tax than the consumers of industry A.
D)The consumers of industry B's product will bear the entire burden of the tax imposed on that product.
Q3) Is the outcome of a competitive market efficient? Explain with the help of a graph.
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Chapter 11: Monopoly
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Q1) If a monopolist's marginal cost is zero,in order to maximize profit the monopolist will:
A)set a price where demand is unit elastic.
B)produce where demand is elastic.
C)expand output to the limit of its physical capacity.
D)not impose an efficiency loss on the society,since P=MC.
Q2) The larger the value of the Lerner index for a firm,_____.
A)the greater the difference between marginal cost and marginal revenue
B)the smaller the difference between marginal cost and price
C)the more price elastic the firm's demand curve
D)the greater the firm's monopoly power
Q3) Which of the following conditions generally holds when a monopoly firm is producing its profit-maximizing level of output?
A)Marginal cost [MC] = marginal revenue [MR] = average cost [AC] = average revenue [AR]
B)MC = MR > AC
C)MC = MR = price
D)MC = MR < AR
Q4) Given the profit function = R - C,derive a monopolist's profit-maximizing price and quantity.
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Chapter 12: Product Pricing With Monopoly Power
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Q1) A perfectly price-discriminating monopolist:
A)restricts output more than an ordinary monopolist does.
B)sells the last unit of output where price equals marginal cost.
C)charges all consumers the same price but sells different quantities to each.
D)obtains less producer surplus than does an non-price discriminating monopolist.
Q2) When a two-part tariff is employed on consumers with identical demand curves,the maximum entry fee the firm can charge:
A)is represented by the total area below the demand curve.
B)is equal to the total consumer surplus.
C)is equal to the total cost.
D)is equal to the average total cost.
Q3) When airlines charge different fares for seats on the same flight depending on how far in advance an airline ticket has been purchased,it is using a(n)_____ strategy.
A)dumping
B)block pricing
C)first-degree price discrimination
D)intertemporal price discrimination
Q4) Why is it difficult to implement first-degree price discrimination?
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Page 14
Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Given that OPEC [Organization of the Petroleum Exporting Countries] has been a successful cartel,all of the following factors could have contributed to its success,except:
A)a low price elasticity of demand for oil.
B)an increase in the consumption of products that require oil.
C)OPEC's ownership of a large percentage of known oil reserves.
D)a high supply elasticity of crude oil by non-OPEC producers.
Q2) Unlike a perfectly competitive firm,a monopolistically competitive firm:
A)makes zero economic profits in the short run.
B)caters to a large portion of the market.
C)does not face barriers to entry and exit.
D)sells a differentiated product.
Q3) Monopolistically competitive firms _____.
A)earn positive economic profit both in the short run and the long run
B)suffer an economic loss in the long run
C)earn positive economic profit in the long run
D)earn zero economic profit in the long run
Q4) What is a cartel and why are cartels considered to be inherently unstable?
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Chapter 14: Game Theory and the Economics of Information
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Sample Questions
Q1) The three most common elements in game theory models are:
A)players,strategies,and payoffs.
B)labor,capital,and returns.
C)price,output,and profit.
D)firms,inputs,and output.
Q2) If X = 10 and Y = 15,then from the information in Table 14-3 we can say that:
A)the payoff matrix represents a prisoner's dilemma game.
B)the game has a dominant-strategy equilibrium.
C)the game has a Nash equilibrium.
D)the payoff matrix represents a Cournot oligopoly.
Q3) Refer to Table 14-4.Assume for this question that "paper" is not allowed as a choice and identify the Nash equilibrium,if any.
A)(Rock,Rock)
B)(Scissors,Scissors)
C)(Rock,Scissors)
D)There is no Nash equilibrium.
Q4) What is a prisoner's dilemma? Draw a payoff matrix which illustrates this game.
Q5) Define adverse selection and moral hazard and give examples of each.
Q6) Compare the benefits and the costs of advertising.
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Chapter 15: Using Noncompetitive Market Models
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Q1) What is meant by iterated dominance?
A)It refers to the process of co-operation among players to maximize the total payoff.
B)It refers to the elimination of a strategy that is dominated by another strategy in a game.
C)It refers to games in which players make decisions in a sequential manner.
D)It is a strategy that is employed by one player without observing the strategies of other players.
Q2) Which of the following is true of a natural monopoly that is regulated by the average-cost pricing strategy?
A)The natural monopoly will earn positive economic profit.
B)The natural monopoly will produce less output than an unregulated monopoly.
C)The equilibrium price of the natural monopoly is now the same as the competitive price.
D)A part of the deadweight loss from an unregulated monopoly is eliminated.
Q3) Refer to Table 15-2.Which of the following is true?
A)Company A's dominant strategy is to set a high price.
B)Company A's dominant strategy is to set a medium price.
C)Company A's dominant strategy is to set a low price.
D)Company A does not have a dominant strategy.
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Page 17
Chapter 16: Employment and Pricing of Inputs
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Q1) A monopoly firm faces the output demand curve P = 25 - 0.5Q,where P is the price of the final product and Q is the level of output.The production function is given by Q = 5X,where X is the only input used in production.Each unit of X is bought by the firm at a constant price of $25 per unit.Based on this information,what level of input would the profit-maximizing monopoly employ?
Q2) In Table 16-1,marginal returns from labor diminishes from the _____ worker.
A)fifth
B)second
C)third
D)sixth
Q3) (
A)A backhoe,a piece of excavating equipment which is mounted on a tractor,acts as both a complement and as a substitute to labor.Explain how it could be used as a complement or a substitute to labor.
Q4) The input supply curve facing a competitive firm is most likely to:
A)be a downward-sloping curve.
B)be more elastic than the industry supply curve.
C)have a zero slope.
D)be unit-elastic over all levels of employment.
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Chapter 17: Wages, Rent, Interest, and Profit
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Q1) The purpose of unions formed by workers is to:
A)increase mobility of labor across industries.
B)increase the productivity of the workers.
C)maximize the economic rent accruing to their members.
D)secure different wages for different members.
Q2) Refer to Figure 17-1.If the number of leisure hours is OL<sub>2</sub> after a change in the wage rate,it implies that:
A)the income effect of the wage change is greater than the substitution effect.
B)the income effect of the wage change is less than the substitution effect.
C)the income effect of the wage change exactly offsets the substitution effect.
D)the income and substitution effects of a wage change operate in the same direction.
Q3) Refer to Figure 17-2.If union members cartelize the supply side of the market,the deadweight loss associated with the union is shown by the area _____.
A)ABL<sub>1</sub>L<sub>2</sub>
B)BCL<sub>2</sub>L<sub>1</sub>
C)W<sub>2</sub>AL<sub>2</sub>O
D)ABC
Q4) What are the sources of variation in wages across individuals?
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Chapter 18: Using Input Market Analysis
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Q1) Which of the following is most likely to occur after an increase in the minimum wage?
A)Low-skilled minority workers will face less discrimination in seeking employment.
B)The demand for skilled workers will fall.
C)Wages will rise in the sectors of the economy not covered by the law.
D)Employers will reduce the fringe benefits for workers who are covered by the law.
Q2) What determines who bears the burden of the social security tax?
Q3) Refer to Figure 18-3.The increase in the income of the capital owners in the country,due to immigration,is represented by the area:
A)ABC.
B)wACw'.
C)ABCE.
D)wABw'.
Q4) A minimum wage mandated by the government will result in an increase in:
A)the supply of workers to the uncovered sector.
B)the wage rate in the uncovered sector.
C)employment opportunities in the covered sector.
D)the demand for workers in the covered sector.
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Chapter 19: General Equilibrium Analysis and Economic Efficiency
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Sample Questions
Q1) Two goods are said to be allocated efficiently between consumers when:
A)they are divided equally between them.
B)the marginal rates of substitution between the two goods are the same for both consumers.
C)further reallocations can make the consumers better off.
D)the consumers derive the maximum marginal utility from the consumption of both the goods.
Q2) Explain how the three primary conditions of economic efficiency are achieved under perfect competition?
Q3) Which of the following is true of general equilibrium analysis?
A)It is useful for analyzing markets when changes are initiated in one market and repercussions are almost nonexistent.
B)It considers the impact of a change in government policy on a market in isolation.
C)It is useful for analyzing markets when changes are initiated in one market but they affect prices and output in other markets.
D)It is useful for analyzing market conditions when there is no mutual interdependence among markets.
Q4) What is the difference between partial and general equilibrium analysis?
Page 21
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Chapter 20: Public Goods and Externalities
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Q1) The cost imposed by an economic activity on others,who are not directly involved in the transaction,is referred to as:
A)a sunk cost.
B)an implicit cost.
C)an external cost.
D)resource overutilization.
Q2) A Web site which allows users to share music at no cost is an example of a(n):
A)good characterized by rivalry and exclusion.
B)inferior good.
C)luxury good.
D)good that is nonrival in consumption.
Q3) In Figure 20-2,the efficient output is _____ than the market equilibrium output by _____ units.
A)more;300
B)less;300
C)more;100
D)less;100
Q4) Mention some of the situations in which the Coase Theorem will not ensure an efficient outcome?
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