Sample Questions from

Microeconomics Part
Choose the best alternative from the below listed questions.

1. A movement along a demand curve may be caused by a change in

A) the non-price determinants of demand.
B) the change in consumer expectations.
C) the change in demand.
D) the change in supply.√

2. Coke and Pepsi are substitutes if

A) the demand for Coke increases when the price of Pepsi falls.
B) the demand for Coke increases when the price of Pepsi rises.√
C) the supply of Coke increases when the price of Pepsi falls.
D) the demand for Coke and Pepsi rise and fall together.

3. )If OPEC increases its price of oil, and still the demand for oil decreases by a very small
amount, we can conclude that the demand for oil is
A) relatively elastic.
B) relatively inelastic.√
C) perfectly elastic.
D) perfectly inelastic.

4.Which of the following cost relationships is not true?

A) AFC = AC - MC√
B) TVC = TC - TFC
C) The change in TVC/the change in Q = MC
D) The change in TC/ the change in Q = MC

5.A short-run total cost function, TC = 100 + 32Q - 4Q2 + 0.4Q3, indicates the existence of
A) a linear total cost curve.
B) a constant average variable cost curve.
C) a U-shaped average variable cost curve. √
D) a constant marginal cost curve.

6. Laura runs a nightclub called the ‘Two Standard Drinks’. Given the popularity and cache of
the club, she has a monopoly position in the market. The market demand curve is given by P =
120 – q. Laura has a marginal cost per drink of MC = 2q and a fixed cost FC = $150. If Laura
charges the same price to all customers, what are Laura’s profit-maximizing price PM and
quantity qM?

a. PM = $90; qM = 60 units

b. PM = $60; qM = 60 units

c. PM = $120; qM = 0 units

d. PM = $30; qM = 30 units

e. PM = $90; qM = 30 units√

7.Dell and HP must both simultaneously prices for their new laptops. They can both either
choose to set a Low or High price. The payoffs are as follows. If both firms set a Low price, Dell
gets 5 and HP 6. If both firms set a High price, the payoffs are 7 to Dell and 8 to HP. If Dell sets a
High price and HP chooses Low, the payoffs are 3 to Dell and 10 to HP. If Dell sets a Low price
and HP opts for High, the payoffs are 9 to Dell and 1 to H. What is the Nash equilibrium?

a. (Low, High), where the first strategy is Dell’s and the second HP’s.

b. (High, Low), where the first strategy is Dell’s and the second HP’s.

c. (High, High), where the first strategy is Dell’s and the second HP’s.

d. (Low, Low), where the first strategy is Dell’s and the second HP’s. √

e. None of the above.