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Exam Answer Key for Microeconomics
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Exam Answer Key for Microeconomics
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MICROECONOMICS FOR FINANCIAL STUDIES(18BSA020) ANSWERS
Exam questions, generic answers and feedback
General feedback: overall students did well. Nevertheless, there is variation in how well
students understood key concepts of microeconomic theory. In Part C, instead of providing the
required analysis, many students seem to have written down anything related that came to their
minds. Sketched answers and feedback are in bold type.
SECTION A
Questions 1 – 15 are multiple choice. Three marks will be given for each correct answer. No
marks for an incorrect answer. This section is worth 45 marks.
1. A movement along a production possibilities frontier reflects ______________ costs.
a. sunk
b. opportunity
c. total
d. marginal
2. Along a linear demand curve revenue is maximized when
a. the price elasticity of demand > 1
b. the income elasticity of demand is <1
c. the price elasticity of demand is -1
d. the price elasticity of demand is 0
3. Economists prefer the following allocation mechanisms
a. Lottery
b. Price
c. Queuing
d. Government decision
4. Suppose that bikes are inferior goods. If income increases, you predict that in the market
for bikes
a. Both equilibrium price and quantity will rise
b. Both equilibrium price and quantity will fall
c. Equilibrium price will rise and quantity will decrease
d. Equilibrium price will fall but quantity will increase
5. A _____________ in the price of _____________ will cause an increase in demand for
labour.
a. Rise; a substitute input
b. Rise; labour
c. Rise; a complementary input
d. Fall; a substitute input
Page 1 of 5
, 6. A firm currently produces 10 units of output at a total cost of 20. The fixed output price is
3/unit. Producing one extra unit of output would increase total cost by 5. Should the firm
a. increase output
b. decrease output
c. not change output
d. cannot tell
7. You make free use of your parent’s car to run a pizza delivery service. In a given week
your revenue is £10 and materials cost is £8. You see that a car sharing app would pay
a fixed £3/week for the use of your parent’s car. Does your business make
a. an economic profit
b. an accounting loss
c. an accounting profit
d. zero economic profit
8. The formula for average variable cost is (Δ indicates change)
a. Δ Total variable cost / quantity
b. Δ Average cost / Δ quantity
c. Δ Total cost / quantity
d. Δ Total cost / Δ quantity
9. A firm that minimizes cost, necessarily
a. Maximizes profit
b. Uses the least cost input combination
c. Charges the highest possible output price
d. Operates with increasing returns to scale
10. A consumer’s Marginal Rate of Substitution for goods X and Y is MUX/MUY is 2 (absolute
value). The price of good X is 5 and the price of good Y is 3. Should she
a. Consume more of X
b. Consume less of X
c. Consume less of Y
d. Do not change consumption
11. Climate change is an example for
a. An externality
b. Government failure
c. Moral hazard
d. Adverse selection
12. Consider the following Cobb-Douglas production function Y=KaL1-a. Does the production
function exhibit
a. Constant returns to scale
b. Increasing returns to scale
c. Decreasing returns to scale
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