Intermediate Microeconomics
Exam Solutions
Course Introduction
Intermediate Microeconomics delves deeper into the principles governing individual and firm behavior in various market structures. The course examines consumer theory, producer theory, and the dynamics of supply and demand, integrating mathematical tools to analyze optimization and equilibrium. Students explore topics such as utility maximization, cost minimization, game theory, market efficiency, welfare analysis, and the impacts of government intervention. Emphasis is placed on the application of theoretical models to real-world economic problems, preparing students to critically assess resource allocation and pricing in competitive and non-competitive environments.
Recommended Textbook
Microeconomic Theory Basic Principles and Extensions 10th Edition by Walter Nicholson
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17 Chapters
334 Verified Questions
334 Flashcards
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Page 2
Chapter 1: Preferences and Utility
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Sample Questions
Q1) Which of the following utility functions represent the same preferences as \(U ( x , y ) = \sqrt { x \cdot y }\)
A) \(U ( x , y ) = 10 \sqrt { x y }\) .
B)U(x,y)= x . y.
C)U(x,y)= ln x + ln y.
D)All of these represent the same preferences.
Answer: D
Q2) If utility is given by U(x,y)= Min (x,3y)then the bundle (3,2)provides the same utility as the bundle
A)(1,3).
B)(2,3).
C)(4,1).
D)(4,2).
Answer: C
Q3) If an individual's utility function is quasi-concave,his or her MRS will
A)diminish as x is substituted for y.
B)increase as x is substituted for y.
C)be undefined except in special cases.
D)always depend only on the ratio of x to y.
Answer: A
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Chapter 2: Utility Maximization and Choice
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Sample Questions
Q1) The slope of the budget constraint line is
A)the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
B)the negative of the ratio of the prices (p<sub>x</sub>/p<sub>y</sub>).
C)the ratio of income divided by price of y (I/p<sub>y</sub>).
D)none of these is correct.
Q2) If an individual's utility function is given by \(U ( x , y ) = \sqrt { x y }\) and I = 100, p<sub>x</sub> = 1,p<sub>y</sub> = 4,his or her preferred consumption bundle will be: A)(20,20).
B)(50,12.5).
C)(40,15).
D)(30,15).
Q3) An individual has a utility function for tennis rackets (x)and tennis balls (y)of the form U(x,y)= min (3x,y).His or her expenditure function is given by
A)\(E = \left( \frac { 1 } { 3 } p _ { x } + p _ { y } \right) U\) .
B)\(E = \left( p _ { x } + 3 p _ { y } \right) U\) .
C)\(E = \left( p _ { x } + \frac { 1 } { 3 } p _ { y } \right) U\) .
D)\(E = \left( p _ { x } + p _ { y } \right) U / 3\) .
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Page 4
Chapter 3: Income and Substitution Effects
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Sample Questions
Q1) If a consumer purchases only two goods (x and y)and the demand for x is elastic,then a rise in the price of x
A)will cause total spending on good y to rise.
B)will cause total spending on good y to fall.
C)will cause total spending on good y to remain unchanged.
D)will have an indeterminate effect on total spending on good y.
Q2) The price elasticity of demand for a horizontal demand curve is A)0.
B)-1.
C)1.
D)-infinity.
Q3) Consider the two following statements:
I.x is an inferior good.
II.x exhibits Giffen's Paradox. Which of the following is true?
A)I implies II,but II does not necessarily imply I.
B)II implies I,but I does not necessarily imply II.
C)I and II are statements of the same phenomenon.
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Chapter 4: Demand Relationships Among Goods
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Sample Questions
Q1) If the demand for x is given by \(x = k p _ { x } ^ { - 1.2 }
,which of parameter values hold?
A)\(e _ { x , p _ { x } } = 1.2 e _ { x , I } = .7 e _ { y , p _ { x } } = .5\) .
B)\(e _ { x , p _ { x } } = - 1.2 e _ { x , p _ { y } } = .5 e _ { x , 1 } = .7\) .
C)\(e _ { x , p _ { k } } = - 1.2 \quad e _ { y , p _ { y } } = .7 \quad e _
.
D)None of these relations hold since the demand function is not homogeneous of degree zero in \(p _ { x } , p _ { y } , \text { and I. }\)
Q2) If a rise in the price x causes less y to be demanded,
A)x and y are gross complements.
B)x and y are gross substitutes.
C)x and y are net complements.
D)x and y are net substitutes.
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6
Chapter 5: Uncertainty and Information
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Sample Questions
Q1) If a fair game is played many times the monetary losses or gains will
A)approach zero.
B)be negative.
C)be positive.
D)result in an outcome that cannot be determined without more information.
Q2) Which of the following utility functions exhibits constant absolute risk aversion?
A)U(W)= W.
B) \(U ( W ) = W - 0.5 W ^ { 2 }\)
C)U(W)= ln W.
D)U(W)= \(- e ^ { - W }\) .
Q3) An option may add value to a transaction because:
A)interest charges are reduced.
B)the price of the good is reduced.
C)additional information may become available.
D)options provide buyers with monopsony power.
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Chapter 6: Strategy and Game Theory
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Sample Questions
Q1) The general message of the folk theorems is that
A)Nash equilibria may not be sustainable over many replications of a game.
B)Payoffs that are unambiguously preferred to Nash equilibria may be sustainable over many replications of a game.
C)Credible threats may inhibit the achievement of mutually beneficial outcomes over many replications of a game.
D)Just plain folk play the best games.
Q2) Which of the following is a true statement about signaling games?
A)In a separating equilibrium,the second mover's posterior beliefs are the same as his priors.
B)In a separating equilibrium,Bayes' rule cannot be used to compute posterior beliefs (because it produces an undefined answer).
C)In a pooling equilibrium,both the first and second movers choose the same action.
D)In a pooling equilibrium,the second mover learns nothing from the first mover's action.
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8
Chapter 7: Production Functions
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Sample Questions
Q1) A firm's isoquant shows
A)the amount of labor needed to produce a given level of output with capital held constant.
B)the amount of capital needed to produce a given level of output with labor held constant.
C)the various combinations of capital and labor that will produce a given amount of output.
D)none of these answers is correct.
Q2) Graphically,the average productivity of labor is illustrated by
A)the slope of the total product curve at the relevant point.
B)the slope of the marginal productivity curve at the relevant point.
C)the negative of the slope of the marginal productivity curve at the relevant point.
D)the slope of the chord connecting the origin with the relevant point on the total output curve.
Q3) The <u>average</u> productivity of labor reaches its maximum
A)at the point of inflection of the total product curve.
B)where the slope of the total product curve is steepest.
C)where the slope of the total product curve is zero.
D)where marginal and average productivity are equal.
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Page 9
Chapter 8: Cost Functions
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Sample Questions
Q1) Technical progress will
A)shift a firm's production function and its related cost curves.
B)not affect the production function,but may shift cost curves.
C)shift a firm's production function and alter its marginal revenue curve.
D)shift a firm's production function and cause more capital (and less labor)to be hired.
Q2) A firm's economic profits are given by
A)total revenue minus total accounting cost.
B)the owner's opportunity cost.
C)total revenue minus total economic cost.
D)total revenue minus the cost of capital.
Q3) In order to minimize the cost of a particular level of output,a firm should produce where
A)labor input equals capital input.
B)the RTS (of L for K)= \(\frac { v } { w }\) .
C)the RTS (of L for K)= \(\frac { w } { v }\)
D)the MRS = \(\frac { v } { w }\) .
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Chapter 9: Profit Maximization
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Sample Questions
Q1) If the price of an input falls,a firm would increase the use of that input for two reasons:
A)The input is now more productive,and the firm can substitute this input for other relatively more expensive inputs.
B)The input is now more productive,and overall production costs are now lower,meaning a firm may choose to increase production.
C)Overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs.
D)Overall production costs are now lower and the firm will have more of other inputs to use with the one in question.
Q2) If the demand faced by a firm is elastic,selling one less unit of output will
A)increase revenue.
B)decrease revenue.
C)keep revenues constant.
D)decrease price.
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11
Chapter 10: The Partial Equilibrium Competitive Model
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Sample Questions
Q1) In the very short run
A)new firms may enter an industry.
B)existing firms may change the quantity they are supplying.
C)price and quantity supplied are absolutely fixed.
D)quantity supplied is absolutely fixed.
Q2) An increase in the price of good x will be accompanied by
A)a shift in the market demand curve for good x.
B)a shift in the market demand curve for good y (a substitute for good x).
C)a movement along the market demand curve for good x.
D)a shift in the market demand curve for good y (a substitute for good x)and a movement along the market demand curve for good x.
Q3) In the opening of free trade,if world prices of a good are less than domestic prices of that same good,
A)domestic consumers will experience a loss of surplus.
B)domestic prices will drop to the world price level.
C)all domestic producers of that good will try to find another market because they can't compete with foreign producers.
D)domestic producers will increase the quantity supplied in order to crowd out the foreign-produced good.
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Page 12
Chapter 11: General Equilibrium and Welfare
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Sample Questions
Q1) In general,non-equilibrium prices occur because A)information is imperfect and adjustment is costly.
B)supply curves shift along stationary demand curves.
C)demand curves shift along stationary supply curves.
D)monopolists charge prices above marginal cost.
Q2) The slope of the production possibility frontier shows
A)the marginal rate of substitution between the two goods.
B)the relative marginal costs of the two goods.
C)the efficient combination of outputs possible using fixed amounts of input.
D)the relative marginal productivities of the two goods.
Q3) If markets are perfect,a rational actor may reasonably conclude from the high price of a good that the good A)is produced by a monopoly.
B)is of better quality.
C)has a greater demand for it.
D)is not known about by other consumers.
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13
Chapter 12: Monopoly
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Sample Questions
Q1) If a monopoly is maximizing profits
A)price will always be greater than average cost.
B)price will always equal marginal cost.
C)price will always be greater than marginal cost.
D)price will always equal marginal revenue.
Q2) Perfect (first degree)price discrimination
A)is a common occurrence in situations with many buyers.
B)occurs fairly often in situations with only a few buyers.
C)is only observed in competitive markets.
D)rarely occurs because firms do not have sufficient power to differentiate among specific buyers.
Q3) Which of the following is not a technical barrier to entry in a monopolized market?
A)A patent.
B)Decreasing average cost.
C)A low cost method of production known only by monopolist.
D)Increasing returns to scale.
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Chapter 13: Imperfect Competition
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Sample Questions
Q1) Product differentiation complicates the study of oligopolies because such markets may not
A)be efficient.
B)have prices equal to marginal cost.
C)have free entry and exit.
D)obey the law of one price.
Q2) Suppose n identical firms engage in Bertrand competition in a stage game repeated infinitely often.What condition on the discount factor \(\delta\) is required for firms to be able to tacitly collude on the monopoly industry output?
A) \(\delta \geq 1 / 2\) .
B) \(\delta \leq 1 / n\) .
C) \(\delta \geq 1 / n ^ { 2 }\) .
D) \(\delta \geq 1 - ( 1 / n )\) .
Q3) A profit-maximizing firm should spend an additional dollar on advertising so long as this expenditure results in more than one dollar of:
A)additional sales.
B)reduced costs.
C)increased profits.
D)demand.
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Page 15
Chapter 14: Labor Markets
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Sample Questions
Q1) A price discriminating monopsonist could increase its profits by
A)paying the minimum wages possible.
B)hiring as little capital as possible.
C)paying lower wages to workers with inelastic supply of labor curves than to workers with elastic curves.
D)paying lower wages to workers with elastic supply of labor curves than to workers with inelastic curves.
Q2) When an individual's wage rises,the substitution effect tends to A)increase hours worked.
B)decrease hours worked.
C)leave hours worked unchanged.
D)it is impossible to predict what will happen to hours worked.
Q3) If an individual is maximizing his or her utility,his or her marginal rate of substitution of leisure hours for consumption will be
A)equal to one divided by his or her wage rate.
B)greater than one divided by his or her wage rate.
C)equal to his or her wage rate.
D)less than his or her wage rate.
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Chapter 15: Capital and Time
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Sample Questions
Q1) An inner tube company which is maximizing its own profits will keep renting machines up to the point where
A)the marginal productivity of a capital is maximized.
B)the marginal value product of machines is maximized.
C)the marginal value product of machines is equal to the market rental rate for machines.
D)the machine's market rental rate is minimized.
Q2) A fall in interest rates leads to
A)an increase in the rental rate on a machine.
B)a decrease in the rental rate on a machine.
C)no change in the rental rate on a machine.
D)a fall in the marginal productivity of capital.
Q3) If a person's inter-temporal utility function is given by \(U
\right) = \frac {
\delta \leq 1\) ,lower values for \(\delta\) will:
A)make this person more averse to consumption fluctuations.
B)make this person less averse to consumption fluctuations.
C)reduce overall consumption levels.
D)reduce savings.
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Page 17
Chapter 16: Asymmetric Information
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Sample Questions
Q1) Let \(s ( \pi ) = a + b \pi\) be the manager's salary in an owner-manager version of the principal-agent problem.Which of the following is characteristic of a "powerful" incentive scheme?
A)a close to 0.
B)a close to 1.
C)b close to 0.
D)b close to 1.
Q2) Which statement is true if the monopolist can observe the consumer's type in the nonlinear-pricing application?
A)The monopolist supplies the consumer with as much of the good as if it were competitively priced.
B)The monopolist's profit approaches the upper bound from the simple linear pricing problem.
C)The monopolist extracts all of the surplus from the low type but not the high type.
D)The monopolist extracts all of the surplus from the high type but not the low type.
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Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) Special interest groups often
A)represent broad questions of public interest.
B)pursue rent seeking behavior.
C)do not use lobbying techniques.
D)have no effect on the political process.
Q2) A non-rival good is a good which
A)is produced by a monopoly.
B)is produced by a cartel.
C)can provide benefits to additional users at a zero marginal cost.
D)is sold in a single market.
Q3) Left to their own,private markets tend to
A)underallocate resources to public goods.
B)allocate the economically efficient amount of resources to public goods.
C)overallocate resources to public goods.
Q4) To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be
A)the firm's marginal cost.
B)the social marginal cost.
C)the difference between the social marginal cost and the firm's marginal cost.
D)the sum of the social marginal cost and the firm's marginal cost.
Page 19
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