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MicroEconomics

QUIZ NO. 1

Multiple Choice— Select the option that best completes the sentence or provides the answer to the question.

Which of the following best describes a technology with increasing returns to scale?
Q(L, K) = 2L + 2K
Q(2L, K) = Q(L, 2K)
Q(2L, 2K) = Q(L, K)
Q(2L, 2K) = 4Q(L, K)


The opportunity cost of something is
What you have to give up by not putting the resources necessary to acquire it to their next best alternative use
The sum of all of the other things you could have bought with the money
The price you paid for it
Any cost that cannot be recovered


In which of the following circumstances a natural monopoly would likely arise?
Very high start-up costs and low unit production costs
Unit production costs are very high at relatively low output levels
Entrance of a second firm to the industry would result in losses for the entrant
All of the above


The market demand curve is
Derived by vertically summing the individual demand curves at each quantity.
Derived by horizontally summing the individual demand curves at each price.
Derived by vertically summing the individual demand curves at each price.
Derived by horizontally summing the individual demand curves at each quantity.


Which of the following is true for a long-run equilibrium in a competitive industry?
min(AVC) = P
min(ATC) = P
min(MC) = P
At least one firm makes positive economic profit



For a demand curve to slope upward,
The good must be an inferior good with an income effect that dominates the substitution effect
Consumers are irrational
The good must be a normal good with a substitution effect that dominates the income effect
The good must be an inferior good with a substitution effect that dominates the income effect


Which of the following combinations is more likely to have straight-line indifference curve?
Left shoes and right shoes
Gasoline and automobiles
Lukoil gasoline and Rosneft gasoline
Pizza and beer


Which of the following is a necessary condition for a monopoly to arise?
Production-specific patents
Superior technology or scale economies
Potential ability of a single firm to satisfy the whole industry demand at any price
None of the above


A monopolist's marginal revenue curve lies below average revenue, because:
A monopolist typically has to pay high taxes
A monopolist has to decrease price of all goods sold if it wants to expand output
Marginal magnitudes consider smaller increments than average ones
Price elasticity of demand decreases as quantity rises


The market demand curve for a luxury good:
Is downward sloping
Is upward sloping
Has price elasticity greater than unity
Has price elasticity less than unity

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