MINISTRY OF EDUCATION AND SCIENCE OF UKRAINE

ODESA NATIONAL ECONOMIC UNIVERSITY

METHODOLOGICAL INSTRUCTIONS
For the tutorials on Microeconomics
nd
for the 2 year foreign students of the day-time department

ODESA ONEU 2021

 MINISTRY OF EDUCATION AND SCIENCE OF UKRAINE
ODESA NATIONAL ECONOMIC UNIVERSITY

METHODOLOGICAL INSTRUCTIONS
FOR THE TUTORIALS ON MICROECONOMICS
FOR THE 2ND YEAR FOREIGN STUDENTS OF THE DAY-TIME
DEPARTMENT

Confirmed on the meeting

of the Department of General Economic Theory
and Economic Policy,
Report № 5 on 02.02.2021.

ODESA ONEU 2021

 Методичні вказівки до семінарських занять з дисципліни
«Мікроекономіка» для іноземних студентів ІІ курсу першого (бакалаврського)
рівня освіти денної форми навчання всіх спеціальностей / Укл. К. О. Шатненко.
– Одеса: ОНЕУ, ротапринт, 2021 р. – 49 c. /

УКЛАДАЧ: К. О. Шатненко, к.е.н., ст. викладач

РЕЦЕНЗЕНТИ: О. С. Шараг, к.е.н., доцент

С. М. Макуха, к.е.н., доцент
 TABLE OF CONTENTS
Introduction ……………………………………………………………..……. 4
І. Tests………….….………………………………………………………..….. 5
ІІ. Problem set…………………………………………………………..…..… 35

3
 INTRODUCTION

Microeconomics is a set of models constructed with the aim of helping people

understand the process by which scarce resources are allocated among alternative
uses as well as the role of prices and markets in this process. In its purest form, it is a
philosophical inquiry into the processes of resource allocation. However, with
understanding usually comes the ability to predict and to control, and it has certainly
been the case in microeconomics. The concepts and models economists have
developed, in connection with the necessary empirical data, provide the basis for the
analysis of policies by governments wishing to influence the allocation of resources.
Economics should provide the solid foundation on which to think about
economic events and navigate the turbulence of economic life. Although thinking like
an economist can bring a clearer perspective to and deeper understanding of today’s
events, students don’t find the economic way of thinking easy or natural.
Microeconomics seeks to put clarity and understanding in the grasp of the student
through its careful and vivid exploration of the tension between self-interest and the
social interest, the role and power of incentives and demonstrating the possibility that
markets supplemented by other mechanisms might allocate resources efficiently.
Students begin to think about issues the way real economists do and learn how to
explore difficult policy problems and make more informed decisions in their own
economic lives.
The purpose of this methodological instructions is to provide students with
instruments which can help them to get fundamental understanding of
microeconomics.
Each topic includes multiple choice questions. These provide efficient way for
students to test themselves on the material. They give students the opportunity to be
active learners. They are designed to give students a clear signal as to whether they
understand the material before they go on to the next topic.
Problem set is a list of problems or exercises based on material already taught,
which the student is expected to solve with a full written solution. There is no further
research involved, and the goal is to learn and become familiar with the material and
solving typical problems.

4
 TESTS

Topic 1. The subject and the method of microeconomics

1. What is the subject of microeconomics?

a) Patterns of development of production;
b) Conditions for economic growth;
c) National economy as the whole;
d) Behavior of individual economic units.

2. Which of the following is associated with microeconomics?

a) Sources of formation of the public budget;
b) Taxation;
c) National income;
d) The profit-maximizing output level.

3. Which of the following is associated with microeconomics?

a) Economic growth;
b) Inflation;
c) Imperfect competition;
d) Unemployment.

4. Which of the following is not associated with microeconomics?

a) Economic cycle;
b) Prices of individual goods;
c) Behavior of a firm;
d) Behavior of a household.

5. Which of the following is not associated with microeconomics?

a) Consumer equilibrium;
b) Food prices;
c) Natural rate of unemployment;
d) Number of employees in a firm.

6. Which of the following is not a microeconomic statement?

a) Over a million dollars will be invested in Ukraine;
b) The price of beef declined by 3 percent last year;
c) Kyivstar’s profits increased last year;
d) The productivity of steelworkers increased by 1 percent last year.

7. The _______ of a choice is the value of the foregone alternative that was not
chosen.
a) comparative advantage;
b) production possibility;
5
 c) opportunity cost;
d) gain from trade.

8. The production possibilities curve:

a) horizontal;
b) vertical;
c) slopes downward;
d) slopes upward.

9. The production possibilities curve:

a) slopes downward and is bowed out from the origin;
b) slopes upward and is bowed out from the origin;
c) slopes downward and is bowed in toward the origin;
d) slopes upward and is bowed in toward the origin.

10. Points outside the production possibilities frontier are:

a) efficient;
b) inefficient;
c) impossible;
d) just possible.

11. Economic growth causes:

a) an inward shift in the production possibilities frontier;
b) an outward shift in the production possibilities frontier;
c) an upward movement on the production possibilities frontier;
d) a downward movement on the production possibilities frontier.

12. If the economy devotes all of its resources to steel production, at which point
will it be producing?

a) A;
b) B;
c) C;
d) D.
6
13.If the economy devotes all of its resources to food production, at which point will
it be producing?

a) A;
b) B;
c) C;
d) D.

14. Point F in the diagram represents

a) an efficient production level;

b) an inefficient production level;
c) an impossible production level;
d) a possible production level.

15. How are private organizations which produce goods and services called?
a) Households;
b) Firms;
c) Governments;

7
 d) Individuals.

16. Which option does describe the situation when two variables move in the same
direction?
a) Positive correlation;
b) Non-correlation;
c) Causation;
d) Negative correlation.

17. Which assumption means “all other things equal”?

a) Ceteris paribus;
b) Scarcity;
c) Causation;
d) Correlation.

18. What are the two main branches of economics?

a) Microeconomics and normative economics;
b) Microeconomics and positive economics;
c) Microeconomics and macroeconomics;
d) Normative economics and positive economics.

19. Which economics does make recommendations about what the government
should do?
a) Positive;
b) Normative;
c) Experimental;
d) Micro.

20. What is an arrangement through which exchanges of goods and services

between people takes place called?
a) A firm;
b) An industry;
c) A market;
d) An economic model.

21. How is it called when the movements in one variable bring about the
movements in another variable?
a) Causation;
b) Correlation;
c) Relationship;
d) Connection.

22. Which of the following is a central theme of economics?

a) Causation;
8
 b) Abundance;
c) Scarcity;
d) Ceteris paribus.

Topic 2. Market structure: the essence and classification

23. The two major types of economics are ______ and _______ economies.
a) multilateral, command;
b) central, planned;
c) market, government;
d) market, command.

24. In a market economy, prices serve as _____, provide ______, and affect the
_____.
a) signals, incentive, distribution of income;
b) distribution of income, signals, incentive;
c) signals, distribution of income, incentive;
d) incentive, signals, distribution of income.

25. Scarcity is a characteristic of:

a) command economy;
b) market economy;
c) all economies;
d) none of the above.

26. A market economy is also called:

a) centrally planned economy;
b) command economy;
c) unplanned economy;
d) none of the above.

27. Choose the description of command economy.

a) Government and individuals share the economic decision making process;
b) The government guides and regulates the production of some goods and
services and resources are owned by individuals;
c) Producers are free to decide what to produce and consumers are free to buy
whatever they need and want;
d) The government decides what will be produced, how much will be produced,
and how much goods and services cost.

28. Choose the wrong option among free market features.

a) Private ownership;
b) Economic freedom;
c) Even distribution of income;
9
 d) Competition;

29. Freely determined prices and property rights are characteristics of:
a) centrally planned economy;
b) market economy;
c) mixed economy;
d) none of the above.

Topic 3. Wants, goods and utility

30. What are complimentary goods?

a) They can only be used together with another good;
b) They cannot be used a second time;
c) They can be used several times;
d) They are essential for survival.
31. What are substitutes?
a) They can only be used together with another good;
b) They cannot be used a second time;
c) They can be used several times;
d) They are alternative goods which satisfy the same want but aren’t used
together.

32. What are durable goods?

a) They can only be used together with another good;
b) They cannot be used a second time;
c) They are goods which can be used many times;
d) They cease to exist after their usage.

33. What are non-durable goods?

a) They can only be used together with another good;
b) They are non-transferable;
c) They are goods which can be used many times;
d) They cease to exist after their usage.

34. What are economic goods?

a) They are only used by private persons;
b) They satisfy our basic needs;
c) They only exist in a limited number;
d) They are needed for the production of other goods.

35. What is created when a product exhibits nonrivalry in consumption and

nonexcludability?
a) Private good;
b) Positive externality;
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 c) Negative externality;
d) Free-rider problem.

36. When the costs of producing a good or the benefits from consuming a good
spill over to individuals who are not involved in production or consumption, a(n)
____ exists.
a) externality;
b) negative externality;
c) positive externality;
d) free-rider problem.

37. Air pollution is a classic example of what?

a) A positive externality;
b) A free-rider problem;
c) A negative externality;
d) A state of excludability.

38. In supporting research, it might be more effective if government directed

money toward which projects?
a) Projects that have small positive externalities;
b) Projects that have large positive externalities;
c) Projects that have small negative externalities;
d) Projects that have no externalities at all.

Topic 4. Supply and demand in the market mechanism

39. According to the law of demand, what will be when the price of a good
increases?
a) People will choose to purchase less of that good and more of other goods;
b) People will provide more of that good;
c) People will choose to purchase more of that good and less of other goods;
d) People will provide less of that good.

40. According to the law of supply, what will be when the price of a good
increases?
a) People will choose to purchase less of that good and more of other goods;
b) People will provide more of that good;
c) People will choose to purchase more of that good and less of other goods;
d) People will provide less of that good.

41. What does the substitution effect suggest?

a) As the price of a good decreases, one will buy more of that good, since in
effect one has more to spend;

11
 b) As the price of a good increases, one will buy less of that good, as it is more
expensive;
c) As the price of a good decreases, one will buy more of that good, since that
good is relatively cheaper than other goods;
d) As the price of a good increases, one will buy more of the other goods, as one
has less “real” income to spend on all goods.

42. What represents the relationship between the price of a good and the quantity
that consumers want to buy? What is the amount that consumers want to buy called?
a) Supply, quantity supplied;
b) Demand, quantity supplied;
c) Demand, quantity demanded;
d) Supply, quantity demanded.

43. Changes in the price of a good, all other things being equal, lead to ____ the
demand curve for that good.
a) an outward shift in;
b) an inward shift in;
c) a movement along;
d) a shift in.

44. Shifts in the demand curve for a good are caused by changes in anything that
affects the amount consumers want to buy except the ____ of that good.
a) price;
b) quality;
c) price of substitutes;
d) price of compliments.

45. What happens with the demand curve when consumers’ tastes change?
a) Remains unchanged;
b) Shifts outward;
c) Shifts inward;
d) Shifts.

46. How to find the market demand curve from the individual demand curves?
a) You should add up the marginal benefits of the individuals at each quantity;
b) You should add up the budget constraints of the individuals;
c) You should consider only those individuals who are buying at the current price;
d) You should add up the quantities demanded by individuals at each price.

47. What shows how much firms wish to sell at different prices?
a) Supply curve;
b) Production function;
c) Demand curve;
12
 d) Producer surplus.

48. The ____ is a graph of the ______ of a good and the ______
a) supply curve, price, quantity supplied;
b) demand curve, price, quantity supplied;
c) supply curve, price, quantity demanded;
d) supply curve, quantity supplied, income of consumers.

49. In which case would potatoes be classed as an inferior good?

a) When people at all levels of income consumed them;
b) When other food was more nutritious;
c) When more were consumed as incomes fell;
d) When fewer were consumed when the price of bread fell.

50. The demand for candies is downward-sloping. Suddenly the price of candies
rises from 8 hryvnias per candy to 10 hryvnias per one. Choose the option which
describes the consequences of this.
a) The demand curve will shift to the left.
b) The demand curve will shift to the right.
c) Quantity demanded will increase.
d) Quantity demanded will decrease.

51. You observe that the price of houses and the number of houses purchased both
rise during a year. Which conclusion can be made?
a) The demand for houses has increased;
b) The demand curve for houses must be upward-sloping;
c) The supply of houses has increased;
d) Housing construction costs must be decreasing.

52. Which option shows an increase in supply?

a) Shifting the supply curve up;
b) Shifting the supply curve to the left;
c) Shifting the supply curve to the right;
d) Moving upward along the supply curve.

53. An increase in the price of hamburgers could be explained by all of the

following except which option?
a) Stricter government controls in the meatpacking industry;
b) Producers’ expectations that beef prices will rise;
c) An increase in vegetarianism;
d) None of the above.

54. What is the area above a supply curve and below the market price line called?
a) Producer surplus;
13
 b) Consumer surplus;
c) Deadweight loss;
d) Revenue.

55. In which situation is a market said to be in equilibrium?

a) When supply equals demand;
b) When there is downward pressure on price;
c) When the amount consumers wish to buy at the current price equals the amount
producers wish to sell at that price;
d) When all buyers are able to find sellers willing to sell to them at the current
price.

56. Which of the following consequences will an increase in the price of wine
have if wine and cheese are complements?
a) It will cause an increase in the price of cheese;
b) It will cause a decrease in the demand for wine;
c) It will cause less cheese to be demanded at each price;
d) It will cause a rightward shift in the demand curve for cheese.

57. Choose the option which describes the consequences of the situation when
both supply and demand increase simultaneously.
a) The equilibrium price must rise and the equilibrium quantity must fall;
b) The equilibrium price must rise and the equilibrium quantity may either rise or
fall;
c) The equilibrium quantity must rise and the equilibrium price may either rise or
fall;
d) The equilibrium price must fall and the equilibrium quantity may either rise or
fall.

58. Which of the following would not eliminate a shortage of a good?

a) A fall in the number of consumers;
b) A fall in the price of a substitute for the good;
c) A fall in the price of a complement for the good;
d) An increase in the price of a substitute.

59. What is the difference between what a person is willing to pay for an additional
unit of a good and the market price called?
a) Consumer shortage;
b) Consumer surplus;
c) Producer shortage;
d) Producer surplus.

60. What does the price elasticity of demand measure?

a) the responsiveness to price of quantity demanded;
14
 b) the responsiveness to price of quantity supplied;
c) the responsiveness to price of income;
d) the responsiveness to price of output.

61. What does the price elasticity of demand measure?

a) the responsiveness of quantity demanded to demand;
b) the responsiveness of quantity demanded to the quantity supplied;
c) the responsiveness of quantity demanded to the price;
d) the responsiveness of quantity demanded to the output.

62. To calculate the price elasticity of demand, you need to know ____ point(s) on
the _____ demand curve.
a) One, same;
b) Two, same;
c) One, opposite;
d) Two, opposite.

63. When the price elasticity of demand for a good is greater than 1, we say that
the demand is _____. Demand is said to be ______ when the elasticity of demand is
less than ______.
a) elastic, inelastic, -1;
b) elastic, inelastic, 1;
c) inelastic, elastic, 1;
d) inelastic, elastic, -1.

64. When demand is completely unresponsive to changes in price, the elasticity of

demand is ______, and the demand curve is a(n) ________ line. We would describe
this demand curve as _____.
a) zero, vertical, perfectly inelastic;
b) one, vertical, perfectly inelastic;
c) one, horizontal, perfectly elastic;
d) zero, horizontal, perfectly elastic.

65. What does the price elasticity of demand show us?

a) How steep the demand curve is;
b) How fast demand responds to price;
c) How much demand shifts when income changes;
d) How quantity demanded responds to price changes.

66. What do you need to know to calculate the price elasticity?

a) Two prices and two quantities demanded;
b) The slope of the demand curve;
c) The equilibrium price and quantity in the market;
d) The quantity demanded at two different prices, all else equal.
15
 67. Why are price elasticities measured in percentage terms?
a) It makes students’ lives more complicated;
b) The resulting measure is unit free;
c) It gives a more accurate answer;
d) The answer is always negative that way.

68. In which case is the demand elastic?

a) When the elasticity of demand is greater than 0;
b) When the elasticity of demand is greater than 1;
c) When the elasticity of demand is less than 1;
d) When the elasticity of demand is less than 0;

69. When the price of gasoline rises by 10 percent, the quantity of gasoline
purchased falls by 8 percent. What can you say about the demand for gasoline?
a) It is perfectly elastic;
b) It is unit elastic;
c) It is elastic;
d) It is inelastic.

70. If the income elasticity of demand for boots is 0.2, to which consequences a 10
percent increase in consumer income will lead?
a) 20 percent increase in the demand for boots;
b) 20 percent decrease in the demand for boots;
c) 2 percent increase in the demand for boots;
d) 0.2 percent increase in the demand for boots.

71. Here are the equations for the demand and supply curves: demand curve:
QD = 200 – 10P; supply curve: Qs = 10P. Compute the equilibrium quantity and price
values.
a) 200; 20;
b) 100; 10;
c) 0; 2;
d) 20; 200.

72. Here are the equations for the demand and supply curves: demand curve:
QD = 400 – 20P; supply curve: Qs = 20P. Compute the equilibrium quantity and price
values.
a) 200; 20;
b) 200; 10;
c) 0; 2;
d) 20; 200.

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 73. Here are the equations for the demand and supply curves: Demand curve:
QD = 500 – P; Supply curve: Qs = 24P – 150. Suppose the government has set the
price for this product: P = 20 hrn. Compute the value of shortage or surplus of this
product.
a) 480.
b) 474.
c) 150.
d) 6.

74. Here are the equations for the demand and supply curves: Demand curve:
QD = 550 – P; Supply curve: Qs = 24P – 200. Suppose the government has set the
price for this product: P = 20 hrn. Compute the value of shortage or surplus of this
product.
a) 530.
b) 520.
c) 250.
d) 10.

Topic 5. The analysis of consumer behavior

75. What is the economic measurement of the amount of pleasure a person gets
from consumption of goods and services called?
a) Satisfaction;
b) Use;
c) Pleasure;
d) Utility.

76. What is the additional utility gained from consuming one extra unit of a good
or service called?
a) Marginal consumption;
b) Satisfaction;
c) Marginal utility;
d) Total value.

77. Choose the economic equivalent of the statement, “You can have too much of
a good thing”.
a) Constant marginal utility;
b) Increasing marginal utility;
c) Diminishing marginal utility;
d) Marginal utility.

78. What is the total amount that a consumer can spend on goods and services
called?
a) Income;
17
 b) Income constraint;
c) Budget;
d) Budget constraint.

79. When Alexander states that he is willing to pay 5 hryvnias for his cup of Earl
Gray tea, which characteristic of that cup is he expressing?
a) Marginal quality;
b) Utility;
c) Average utility;
d) Marginal utility.

80. Which statement best describes marginal utility?

a) The additional satisfaction gained by consumption of the last good;
b) The per unit satisfaction of the good consumed;
c) The total satisfaction gained from the total consumption of the good;
d) The change in satisfaction from consuming one additional unit of the good.

81. Which statement does imply to the situation, when marginal utility of a good
is zero?
a) The consumer would not spend any additional income to buy more of that
good;
b) Consumption of additional units would have positive marginal utility;
c) Total utility is minimized;
d) Total utility is also zero.

82. According to which principle do consumers divide their income among all
goods?
a) The total utility from each good must be zero;
b) The final dollar spent on each good yields equal marginal utility;
c) The ratio of marginal utility to quantity consumed of each good must be equal;
d) An equal amount is spent on each good.

Topic 6. Microeconomic model of a firm

83. Which of the following inputs are variable in the long run?
a) labor;
b) capital and equipment;
c) plant size;
d) all of these.

84. Which option describes the short run?

a) less than a year.
b) however long it takes to produce the planned output.
c) a time period in which at least one input is fixed.
18
 d) a time period in which at least one set of outputs has been sold.

85. The additional output created by adding one more worker to the production of
that good is called the ____ of labour.
a) diminishing returns;
b) utility;
c) marginal cost;
d) marginal product.

86. Which statement expresses diminishing returns to labour?

a) The marginal curve for a firm is downward-sloping;
b) The output of a firm will eventually decrease;
c) Producing more of a product means having to produce less of another good;
d) Each additional unit of labour input increases the amount of output by a lesser
amount than the previous unit of labour increased output.

87. What does a production function assume as a given?

a) technology;
b) set of input prices;
c) ratio of input prices;
d) amount of capital and labor.

88. Which option describes the technological improvement?

a) It can hide the presence of diminishing returns;
b) It can be shown as a shift in the total product curve;
c) It allows more output to be produced with the same combination of inputs;
d) All of the above are true.

89. Which option describes the marginal product of an input?

a) total product divided by the amount of input used to produce this amount of
output;
b) the addition to total output that adds nothing to total revenue;
c) the addition to total output due to the addition of one unit of all other inputs;
d) the addition to total output due to the addition of the last unit of an input,
holding all other inputs constant.

90. Which option describes the situation when the average product is decreasing?
a) Marginal product equals the average product;
b) Marginal product is increasing;
c) Marginal product exceeds average product;
d) Marginal product is less than the average product.

19
 91. Which option describes the situation when the marginal product crosses the
horizontal axis (is equal to zero)?
a) At this point the average product is maximized;
b) At this point the total product is maximized;
c) At this point diminishing returns set in;
d) At this point the output per worker reaches a maximum.

92. To which period does the law of diminishing returns apply?

a) the short run only;
b) the long run only;
c) both the short and long run;
d) neither the short nor the long run.

93. What would not increase the productivity of labor?

a) An increase in the size of the labor force;
b) An increase in the quality of capital;
c) An increase in the quantity of capital;
d) An increase in technology.

94. You operate a car detailing business with a fixed amount of machinery
(capital). Three employees can generate an average product of 6 cars per person in
each hour, and five employees can generate an average product of 4 cars per person
in each hour. What is the marginal product of labor as you increase the labor from
three to five employees?
a) MP= 4 cars;
b) MP= 1 car;
c) MP= 0,5 car;
d) MP= -1 car.

95. You operate a car detailing business with a fixed amount of machinery
(capital). As you increased the number of employees hired from three to five, your
total output increased by 5 cars to 20 cars per hour. What is the average product of
labor at the new levels of labor?
a) AP= 3 cars per worker;
b) AP= 5 cars per worker;
c) AP= 4 cars per worker;
d) We do not have enough information to answer this question.

96. What is the marginal product of labour for the fourth unit?
Input of labour Output of baskets
1 10
2 25
3 41
4 52
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 5 62
6 70
7 75
a) 8;
b) 10;
c) 11;
d) 16.

97. At what unit of input do diminishing returns occur?

Input of labour Output of baskets
1 10
2 25
3 41
4 52
5 62
6 70
7 75
a) first;
b) second;
c) third;
d) fourth.

98. For which units of input do increasing returns occur?

Input of labour Output of baskets
1 10
2 25
3 41
4 52
5 62
6 70
7 75
a) none;
b) 1;
c) 1 and 2;
d) 1, 2 and 3.

99. Which option describes an isoquant?

a) it cannot have a negative slope;
b) it is a curve that shows all the combinations of inputs that yield the same total
output;
c) it is a curve that shows the maximum total output as a function of the level of
labor input;

21
 d) it is a curve that shows all possible output levels that can be produced at the
same cost.

100. What is the rate at which one input can be reduced per additional unit of
the other input, while holding output constant called?
a) marginal rate of substitution;
b) marginal rate of technical substitution;
c) slope of the isocost curve;
d) average product of the input.

101. Choose isoquants for a production function in which the inputs are
perfectly substitutable.
a) Convex to the origin;
b) L-shaped;
c) Linear;
d) Concave to the origin.

102. Choose the description of an L-shaped isoquant.

a) would indicate that the firm could switch from one output to another costlessly;
b) would indicate that the firm could not switch from one output to another;
c) would indicate that capital and labor cannot be substituted for each other in
production;
d) would indicate that capital and labor are perfect substitutes in production.

103. A firm's marginal product of labor is 4 and its marginal product of

capital is 5. If the firm adds one unit of labor, but does not want its output quantity to
change, what should the firm do?
a) use five fewer units of capital;
b) use 0.8 fewer units of capital;
c) use 1.25 fewer units of capital;
d) ad 1.25 units of capital.

104. What does it mean if a firm is operating with increasing returns to scale?
a) It means that more than 10% as much of all inputs are required to increase
output by 10%;
b) It means that less than twice as much of all inputs are required to double
output;
c) It means that more than twice as much of only one input is required to double
output;
d) It means that isoquants must be linear.

105. Choose the description of increasing returns to scale in terms of the isoquant
approach.
a) Isoquants become farther and farther apart;
22
 b) Isoquants become closer and closer together;
c) Isoquants have the same distance apart;
d) None of the above.

Topic 7. Cost of production and profit of a firm

106. What are normal profits?

a) Normal profits are equal to zero in long-run equilibrium;
b) Normal profits are an explicit opportunity cost to the business;
c) Normal profits are an implicit opportunity cost to the business;
d) Normal profits are profits which provide the satisfaction of basic needs of an
entrepreneur.

107. Costs determine all of the following except which one?

a) Firm behavior;
b) How firms should expand;
c) Firm profitability;
d) Demand for a product.

108. Normal profits occur when ____ are zero, or ______ equal(s)
accounting profits.
a) opportunity costs, economic profits;
b) economic profits, opportunity costs;
c) marginal costs, marginal revenue;
d) implicit costs, economic profits.

109. Choose the right option. ____ are the sum of ____ and ____.
a) Marginal costs (MC), fixed costs (FC), variable costs (VC);
b) Total costs (TC), fixed costs (FC), variable costs (VC);
c) Fixed costs (FC), variable costs (VC), marginal costs (MC);
d) Variable costs (VC), fixed costs (FC), marginal costs (MC).

110. In which option the general shape of the marginal cost curve is
described?
a) It is horizontal and then declines;
b) It is horizontal and then rises;
c) It is rises and then declines;
d) It is declines and then rises.

111. A firm is producing 20 units with an average total cost of $25 and
marginal cost of $15. If it increases production to 21 units, which of the following
would occur?
a) Marginal cost would decrease;
b) Marginal cost would increase;
23
 c) Average total cost would decrease;
d) Average total cost would increase.

112. A firm is producing 25 units with an average total cost of $20 and
marginal cost of $20. If it increases production to 21 units, which of the following
would occur?
a) Marginal cost would be the same;
b) Marginal cost would be equal to 0;
c) Average total cost would decrease;
d) Average total cost would increase.

113. Calculate total fixed cost in the following example.

Q P Fixed Cost Variable Total Cost
Cost
0 100 ? ? 100
1 100 ? 50 ?
2 100 ? ? 190
3 100 ? 140 ?
4 100 ? 200 ?
a) 0;
b) 50;
c) 100;
d) 300.

114. Calculate variable costs of producing no output in the following

example.
Q P Fixed Cost Variable Total Cost
Cost
0 100 ? ? 100
1 100 ? 50 ?
2 100 ? ? 190
3 100 ? 140 ?
4 100 ? 200 ?
a) 0;
b) 100;
c) 400;
d) incalculable from the information given in this question.

115. Calculate total cost of producing 3 units.

Q P Fixed Cost Variable Total Cost
Cost
0 100 ? ? 100
1 100 ? 50 ?
24
 2 100 ? ? 190
3 100 ? 140 ?
4 100 ? 200 ?
a) 150;
b) 190;
c) 240;
d) 300.

116. Calculate the profits for producing 4 units of the good.

Q P Fixed Cost Variable Total Cost
Cost
0 100 ? ? 100
1 100 ? 50 ?
2 100 ? ? 190
3 100 ? 140 ?
4 100 ? 200 ?
a) 25;
b) 60;
c) 100;
d) 200.

117. The government imposes a $1,000 per year license fee on all cafes.
Which kinds of cost curves will shift as a result?
a) average total cost and marginal cost;
b) average total cost and average fixed cost;
c) average variable cost and marginal cost;
d) average variable cost and average fixed cost.

118. What shows different combinations of labour and capital that have the
same total costs?
a) Isoquant line;
b) Isocost line;
c) Production function;
d) Total cost curve.

119. Which option does characterize the situation that occurs when the long-
run average total cost curve rises?
a) Economies of scale;
b) Constant returns to scale;
c) Increasing returns to scale;
25
 d) Decreasing returns to scale.

120. Choose the option which describes the situation when a firm
experiences increasing returns to scale.
a) Long-run average total cost curve is equal to the economies of scope;
b) Long-run average total cost curve is positively sloped;
c) Long-run average total cost curve is horizontal;
d) Long-run average total cost curve is negatively sloped.

121. Choose the description of the long-run average total cost curve.
a) It traces out the points on the lowest short-run average total cost curve for each
level of production;
b) It is inversely related to the depth of the short-run marginal cost curve;
c) It traces out the midpoints on the average of several short-run cost curves;
d) It is downward-sloping under decreasing returns to scale.

122. Choose the option which describes the situation with diseconomies of
scale present.
a) The long run market supply curve will be downward-sloping;
b) The long run market supply curve will be horizontal;
c) The long run market supply curve will be upward-sloping;
d) The long run market supply curve will be a hyperbola.

123. What is the smallest scale of production for which long-run average
total cost is at a minimum called?
a) Inefficient scale;
b) Long-run scale;
c) Economies of scope;
d) Minimum efficient scale.

124. If a higher level of production allows workers to specialize in particular

tasks, a firm will likely exhibit ________ of scale and ________ average total cost.
a) economies, falling;
b) economies, rising;
c) diseconomies, falling;
d) diseconomies, rising.

125. The firm’s quantity of production equals 500 units of a product.

Average variable costs are $25. Average fixed costs are $15. Compute the value of
total costs.
a) 10
b) 5000
c) 20000
d) 540
26
 126. The firm’s quantity of production equals 500 units of a product. Average
variable costs are $40. Average fixed costs are $10. Compute the value of total costs.
a) 50
b) 25000
c) 550
d) 15000

127. The firm’s quantity of production equals 4 units of a product per day.
Average variable costs are $100. Fixed costs are $800 per day. Compute the value of
average total costs.
a) 2800
b) 1200
c) 225
d) 300

128. The firm’s quantity of production equals 5 units of a product per day.
Average variable costs are $100. Fixed costs are $600 per day. Compute the value of
average total costs.
a) 3500
b) 2500
c) 220
d) 100

Topic 8. Model of a firm in a perfectly competitive market

129. The competitive market demand curve is _____ whereas a single firm in
the market sees its demand curve as _____.
a) upward-sloping, perfectly elastic;
b) downward-sloping, perfectly inelastic;
c) downward-sloping, horizontal;
d) horizontal, downward-sloping.

130. What does a typical perfectly competitive firm do?

a) chooses its price to maximize profits;
b) sets its price to undercut other firms selling similar products;
c) takes its price as given by market conditions;
d) picks the price that yields the largest market share.

131. When does the shutdown point occur?

a) P < MR;
b) P = AVC;
c) P > AVC;
d) P = ATC.
27
 132. Which option describes the situation when MC > AVC?
a) AVC will fall with increased production;
b) MC is at its lowest point;
c) AVC is minimized;
d) AVC will rise with increased production.

133. Where does graphically the MC curve cut through the ATC curve?
a) At the lowest point on the MC curve;
b) At the highest point on the MC curve;
c) At the lowest point on the ATC curve;
d) At the middle of the upward-sloping portion of the total cost curve.

134. At which level of production does a competitive firm maximize profit?

a) P = MC;
b) P = ATC;
c) ATC = MC;
d) P > MC.

135. When should a firm shut down in the short run?

a) When production losses are less than fixed costs;
b) When only normal profits are earned;
c) When production losses exceed fixed costs;
d) When fixed costs are zero.

136. When does the break-even point occur?

a) P = AVC;
b) P > AVC;
c) P = ATC;
d) P > ATC

137. Choose the condition of positive profits at the profit-maximizing

quantity.
a) P = MC;
b) P > AVC;
c) P = ATC;
d) P > ATC.

138. If profit-maximizing, competitive firm is producing a quantity at which

marginal cost is between average variable cost and average total cost, what will it
choose?
a) keep producing in the short run but exit the market in the long run;
b) shut down in the short run but return to production in the long run;
c) shut down in the short run and exit the market in the long run;
28
 d) keep producing both in the short run and in the long run.

139. The _______ incorporates utility-maximizing consumers and profit-

maximizing firms in competitive markets.
a) model of consumer behavior;
b) model of firm behavior;
c) first theorem of welfare economics;
d) competitive equilibrium model.

140. What is affected by the entry or exit of firms in the market?

a) The market supply curve;
b) The market demand curve;
c) Only a portion of that market;
d) Only that firm.

141. Entry into or exit from the market causes the ____ to shift.
a) Market demand curve;
b) Market supply curve;
c) Supply curve of the individual firm;
d) Average fixed cost curve.

142. In a competitive market, over the long run, ____ is minimized.

a) Average fixed cost;
b) Average variable cost;
c) Average total cost;
d) Marginal cost.

143. Choose the option which describes competitive equilibrium in the long
run.
a) Individual firms can earn economic profits;
b) Individual firms earn normal profits and the entire market is in equilibrium;
c) Individual firms earn normal profits and the entire market maintains excess
demand;
d) Individual firms earn economic profits and the entire market is in equilibrium.

144. Which option describes the situation when economic profits are
positive?
a) Firms exit the market;
b) Firms enter the market;
c) Normal profits are zero;
d) P is less than ATC and P = MC.

145. Choose the option which describes economic profits.

a) Economic profits can result only from an increase in demand;
29
 b) Economic profits can result if ATC falls below the original market price;
c) Economic profits are an implicit opportunity cost to the owner;
d) Economic profits result if P = ATC.

146. Choose the option which describes competitive equilibrium in the long
run.
a) Economic profits are positive;
b) Economic profits are negative;
c) Economic profits are zero;
d) None of the above.

147. Choose the option which describes the situation in a competitive market.
a) MC is minimized over the long run;
b) AVC is equal to the market price over the long run;
c) Entry will never stop;
d) ATC is minimized over the long run.

148. In the long-run equilibrium of a competitive market with identical firms,

what is the relationship between price P, marginal cost MC, and average total cost
ATC?
a) P > MC and P > ATC;
b) P > MC and P = ATC;
c) P = MC and P > ATC;
d) P = MC and P = ATC.

149. Suppose that the firm produces 2000 folders per month and sells them at
a price $5 per folder. Its average total costs for producing 2000 folders are $4.
Calculate firm’s profits per month.
a) 2000;
b) 10000;
c) 18000;
d) 8000.

150. Suppose that the firm produces 2000 T-shirts per month and sells them at
a price $5 per T-shirt. Its average total costs for producing 2000 T-shirt are $4.
Calculate firm’s profits per month.
a) 20000;
b) 6000;
c) 14000;
d) 3000.

Topic 9. Model of a firm in the markets of imperfect competition

30
 151. For a monopoly, marginal revenue is _____ than the price of the good,
and the marginal revenue curve lies ____ the demand curve.
a) less, below;
b) greater, above;
c) less, above;
d) greater, below.

152. When we compare a competitive market to a monopoly, we find that the

price is ____ in a monopoly and that the quantity produced is _____.
a) lower, higher;
b) higher, lower;
c) lower, equal;
d) higher, equal.

153. Choose an example of a barrier to entry in the airline industry.

a) The cost of buying a plane;
b) Having a trademark on the corporate slogan;
c) A license for a gate at the airport;
d) The need to find customers.

154. Which of the following does not contribute to the monopoly power of a
firm?
a) A patent or copyright on a product;
b) Exclusive control over a vital input for the production of a good;
c) A license from the government;
d) Charging a high price for the good.

155. Which of the following statements is false for a monopoly equilibrium?

a) Marginal revenue is less than or equal to price;
b) Economic profits are always greater than zero;
c) Price is greater than or equal to both marginal cost and marginal revenue;
d) Marginal cost is equal to marginal revenue.

156. What is it called when a firm charges different customers different

prices for the same good?
a) Positive discrimination;
b) Negative discrimination;
c) Racial discrimination;
d) Price discrimination.

157. Price discrimination can help a monopoly increase its _______ if the
monopoly can capitalize on the fact that different groups of customers have different
_______ of demand.
a) profits, income elasticities;
31
 b) profits, price elasticities;
c) quantity produced, income elasticities;
d) quantity produced, price elasticities.

158. Price discrimination can help a monopoly increase its ____ if the
monopoly can capitalize on the fact that different groups of customers have different
_____ of demand.
a) profits, income elasticities;
b) profits, price elasticities;
c) quantity produced, income elasticities;
d) quantity produced, price elasticities.

159. In monopolistic competition, there is ______ entry and exit from the
market and the firm faces a(n) _____ demand curve for its product.
a) no, horizontal;
b) no, downward-sloping;
c) easy, downward-sloping;
d) difficult, upward-sloping.

160. In the short run, a monopolistically competitive firm will maximize

profits where _____ equals ______.
a) marginal revenue, price;
b) marginal revenue, marginal cost;
c) price, average total cost;
d) price, marginal cost.

161. When firms agree among themselves how much to produce or what
price to charge, this is called a(n) ______; firms can sometimes reach the same result
through _______ - for example, through price leadership.
a) cartel, explicit collusion;
b) oligopoly, explicit collusion;
c) oligopoly, tacit collusion;
d) cartel, tacit collusion.

162. Which of the following goods has the least product differentiation?
a) Ice cream;
b) Corn;
c) Gasoline;
d) Toilet paper.

163. Which of the following industries does not show the qualities of a
monopolistically competitive industry?
a) The women’s shoe industry;
b) The IBM-compatible computer industry;
32
 c) The airline industry;
d) The furniture industry.

164. Which of the following characteristics would not be consistent with a

monopolistically competitive industry?
a) There are few barriers to entry in the long run;
b) There are many sellers in the industry;
c) The price charged by every firm is the same;
d) Firms advertise a great deal.

165. Which of the following is the short-run profit-maximizing rule in a

monopolistically competitive industry?
a) Marginal revenue equals average cost;
b) The same as monopolist’s rule;
c) Price equals marginal cost;
d) Marginal cost equals average cost.

166. What distinguishes oligopoly from other industry structures?

a) Strategic behavior;
b) A downward-sloping demand curve facing the oligopolist;
c) Product differentiation;
d) The possibility of profits in the long run.

167. Choose the example of tacit collusion.

a) Price fixing;
b) Exchanging price, cost, and output information with other firms in an industry;
c) Each smaller firm is matching the price set by the largest firm;
d) A merger of two competing firms.

168. Which Act, passed by Congress in 1890, is the cornerstone of antitrust

policy in the United States?
a) Celler-Kefauver Act;
b) Clayton Antitrust Act;
c) Sherman Antitrust Act;
d) Herfindahl-Hirschman Act.

169. An industry where one can supply the entire market at a lower cost than
two or more firms is a(n) ______. It is characterized by _____ and a declining _____
curve.
a) natural monopoly, decreasing returns to scale, marginal cost;
b) natural monopoly, economies of scale, average total cost;
c) oligopoly, increasing returns to scale, average total cost;
d) natural monopoly, diseconomies of scale, average total cost.

33
 170. Which of the following statements about antitrust policy is correct?
a) The primary goal is the creation of perfectly competitive industries;
b) It is directed only at pure monopoly industries;
c) It is directed toward direct regulation of monopoly power through government
agencies;
d) It attempts to create and nurture a more competitive environment for firms.

Topic 10. Factor markets

171. What causes factor demand curves to shift?

a) Changes in prices of goods;
b) Changes in supply of other factors;
c) Changes in technology;
d) All of the above.

172. What is the cost of hiring an additional unit of a factor of production

called?
a) Rent;
b) Factor value;
c) Factor price;
d) Marginal product.

173. An increase in the demand for automobiles will cause the demand for
skilled automobile workers and the wage rate of skilled automobile workers to
change in which of the following ways?
a) Demand will increase; wage will be unchanged;
b) Demand will increase; wage will increase;
c) Demand will decrease; wage will increase;
d) Demand will decrease; wage will decrease.

174. What is a market in which there is a single buyer (employer) called?

a) monopoly;
b) monobuyer;
c) monopsony;
d) monopolistic employer.

175. How does an increase in wage rate affect individual labor supply if the
individual is already a wealthy person?
a) Individual will decrease in the demand for leisure and increase in the quantity
of labour supplied.
b) Individual will increase in the demand for leisure and decrease in the quantity
of labour supplied.
c) People always work more in response to rising wage rates;
d) Individual will not change his labor supply and be working the same hours.
34
 PROBLEM SET

Topic 1. The subject and the method of microeconomics

Situation 1. There is a country which produces guns and butter. Suppose that it
decided to produce more guns and less butter. What would this country has to do to
make the change? What would be the opportunity cost of producing more guns?
What conditions would have to be met for the new mix of guns and butter to be on
the production possibilities frontier?

Situation 2. Mexico is specialized on production of textiles. Workers in Mexico

decide to go on strike. Show the effect on the production possibilities frontier graph
for Mexico.

Situation 3. Suppose that an economy’s production possibilities frontier is a

straight line, rather than a bowed out, concave curve. What would this say about the
nature of opportunity cost as production is shifted from one good to the other?

Situation 4. Discuss whether each statement is a purely positive statement, or

also contains normative elements and/or value judgments:
a) An increase in the personal income tax will slow the growth rate of the
economy.
b) The goal of any country’s economic policy should be to increase the well-
being of its poorest, most vulnerable citizens.
c) The best way to reduce the national poverty rate is to increase the minimum
wage.
d) The 1990s were a disastrous decade for the U.S. economy. Income inequality
increased to its highest level since before World War II.

35
 Problem 1.
The manager spends a day on a flight from Kiev to Amsterdam, taking into
account the associated time costs. The train journey takes two days. An air ticket
costs $ 300 and a train ticket costs $ 180. During the journey, the manager was
deprived of the opportunity to earn money.
a) What method of transportation is cheaper for a manager who earns $ 150
every day, regardless of whether he has a day off?
b) At what level of daily earnings would the manager be indifferent to the choice
of means of transportation from Kiev to Amsterdam?

Problem 2.
A corporation has invested $ 2.5 million into shares. As a result, the profit of
700 thousand dollars a year was received. Did the corporation work efficiently if the
interest on deposits in reliable banks reached 40%?

Topic 2. Market structure the essence and classification

Situation 1. The nation incurs opportunity costs when it makes choices. The
money spent on defense cannot at the same time be spent on health services; money
spent on health services cannot be spent on education, and so on. Why does every
choice involve an opportunity cost?

Topic 3. Wants, goods and utility

Problem 1.
The marginal utility of the first cup of coffee that Tom drinks in the morning is 2
utils. The marginal utility of the second cup of coffee he drinks is positive while the
marginal utility of the third cup of coffee he drinks in the morning is 0 utils. How
many cups of coffee would Tom drink in the morning at a price of $0?

Problem 2.
Using the data from the table:
1) Calculate the marginal utility of the third and fifth cake?
2) Draw the graphs of total and marginal utility.
3) Define the number of cakes at which the consumer maximizes total utility.

The number of cakes 0 1 2 3 4 5 6 7

TU, utils 0 5 9 12 14 15 15 14

Situation 1. For each of the following situations, decide whether Al has

increasing, constant, or diminishing marginal utility.
a) The more economics classes Al takes, the more he enjoys the subject. And the
more classes he takes, the easier each one gets, making him enjoy each additional
class even more than the one before.
36
 b) Al likes loud music. In fact, according to him, “the louder, the better.” Each
time he turns the volume up a notch, he adds 5 utils to his total utility.
c) Al enjoys watching reruns of the old sitcom Friends. He claims that these
episodes are always funny, but he does admit that the more he sees an episode, the
less funny it gets.
d) Al loves toasted marshmallows. The more he eats, however, the fuller he gets
and the less he enjoys each additional marshmallow. And there is a point at which he
becomes satiated: beyond that point, more marshmallows actually make him feel
worse rather than better.

Topic 4. Supply and demand in market mechanism

Situation 1. For each of the following scenarios, use a supply and demand
diagram to illustrate the effect of the shock given on the equilibrium price and
quantity in the specified competitive market. Explain whether there is a shift in the
demand curve, the supply curve, or neither.
1) An unexpected temporary heat wave hits the Kyiv. Show the effect in the ice
cream market in Kyiv.
2) The government introduces a tax on ice cream which is paid by producers.
What is the effect in the ice cream market?
3) Suppose the government imposes a price cap on bottled water. Show the
effect in the bottled water market.

Situation 2. Discuss, and illustrate with a graph, how each of the following
events will affect the market for coffee:
a) A blight on coffee plants kills off much of the Brazilian crop.
b) The price of tea declines.
c) Coffee workers organize themselves into a union and gain higher wages.
d) Coffee is shown to cause cancer in laboratory rats.
e) Coffee prices are expected to rise rapidly in the near future.

Situation 3. For each of the following pairs of goods, identify which one you
would expect to have more price elastic demand. Please explain your reasoning.
1) Computers (generally) vs. Apple MacBook Pro laptops.
2) Stereo headphones (generally) vs. hearing aids.
3) Ice cream in winter vs. ice cream in summer.
4) Wet wipes vs. leather bag.
5) Respiratory masks during a flu epidemic vs. purifying face mask.

Situation 4. The elasticity of demand can usually be estimated by examining the

answers to three key questions. All three answers do not have to be the same in order
to determine elasticity, and in some cases the answer to a single question is so
important that it alone might dominate the answers to the other two. Fill in empty
table cells.
37
 Products
Determinants Fresh Table Gasoline Gasoline in Services of Insuli Butter
of elasticity tomatoes, salt from a general medical n
Yes (elastic) corn, or particular doctors
No (inelastic) green station
beans
Can purchase
be delayed?
Are adequate
substitutes
available?
Does purchase
use a large
portion of
income?
Type of
elasticity

Situation 5. One software producer decided to test the market for its new
accounting program at different prices. The firm, Noumenon Corporation, raised
prices in increments of $20 all the way up to $210. As a result of this experiment,
they decided to advertise and market the Intuit Accounting program at $80, much
lower than the prices of competing software programs. Explain the reasoning of this
pricing strategy.

Problem 1.
Functions of demand and supply are: QD = 440 – 10P; Qs = 20P.
a) Find the price and volume of equilibrium.
b) Find the price and volume of equilibrium in case of two times increase of the
demand.

Problem 2.
There are 2 markets of commodity A. The demand function on the 1st market is
D1 =1000 – 10P, the supply function is S1 = 2P – 100. On the 2nd market demand
function is D2 = 1300 – 10P, supply function is S2 = 10P – 200. Estimate changes in
market price and volume in the case if markets unite?

Problem 3.
Functions of demand and supply are: Qd = 700 – Р; Qs = 2P – 350. Find the price
and volume of equilibrium. What will happen with market equilibrium in the case if
government sets fixed price: 180 dollars?

Problem 4.

38
 Functions of demand and supply are: Qd = 600 – Р; Qs = 2P – 150. Find the price
and volume of equilibrium. What will happen with market equilibrium in the case if
government sets fixed price: 300 dollars?

Problem 5.
Functions of demand and supply are: QD = 60 – 2P; QS = 20 + P. Find the price
and volume of equilibrium. What will happen with market equilibrium in the case if
government sets fixed price: 18 hryvnias?

Problem 6.
The price of commodity has increased from 20 to 25 dol. and volume of demand
has decreased from 1000 to 900 units. Determine the coefficient of price elasticity
and comment the result?

Topic 5. The analysis of consumer behavior

Situation 1. Which of the following descriptions of consumer behavior violates

the assumption of rational preferences? Explain briefly.
a) Joseph is confused: He doesn’t know whether he’d prefer to take a job now or
go to college full-time.
b) Brenda likes mustard on her pasta, in spite of the fact that pasta is not meant
to be eaten with mustard.
c) Brewster says, “I’d rather see an action movie than a romantic comedy, and
I’d rather see a romantic comedy than a foreign film. But given the choice, I think I’d
rather see a foreign film than an action movie.”

Situation 2. Howard spends all of his income on magazines and novels.

Illustrate each of the following situations on a graph, with the quantity of magazines
on the vertical axis and the quantity of novels on the horizontal axis. Use two budget
lines and two indifference curves on each graph.
a) When the price of magazines rises, Howard buys fewer magazines and more
novels.
b) When Howard’s income rises, he buys more magazines and more novels.
c) When Howard’s income rises, he buys more magazines but fewer novels.

Problem 1.
MU x
Sue is maximizing her utility consuming two goods: X and Y. Her P =10 and
x
MU y=40. Calculate the price of Y.

39
 Problem 2.
Ted has $600 a week to spend on clothing and food. The price of clothing is $30
and the price of food is $5. What is the equation for Ted's budget constraint?

Problem 3.
Jane had $500 a week to spend on clothing and food. The price of clothing is
$25 and price of food is $10. Jane spends on it her entire income. The marginal utility
of the last unit of clothing she bought is 150 utils. The marginal utility of the last unit
of food she bought is (120 – 3Y) utils, where Y is the number of units of food. How
many units of clothing and food does she purchase a week?

Problem 4.
Suppose that the following data reflect the preferences and capabilities of the
consumer who has a budget of 10 hryvnias per day and who plans to use his entire
budget to purchase goods X and Y: MUX = 20 – 5QX; MUY = 10 – 3QY; PX = 6
hryvnias; РY = 2 hryvnias. Calculate which set of products X and Y the consumer
should buy to maximize the utility of a set of two products with a limited budget.

Problem 5.
Suppose that the budget of consumer is $208, MUX = 120 – 4QX; MUY = 96 –
2QY; PX = $2; РY = $4. Find quantity of goods X and Y in the point of consumer
equilibrium?

Problem 6.

The figure shows the indifference curve and the budget line. Suppose that the
price of good X is 8 hryvnias. Find:
a) the price of good Y;
b) the equation of this budget line;
c) the marginal rate of substitution of X for Y in the state of equilibrium of the
consumer.

40
 Problem 7.
Draw the budget line which function is: 400 = 5QX + 10QY, where QX and QY are
the numbers of units of goods X and Y respectively. The price of good X is 5
hryvnias and the price of good is 10 hryvnias. Find the function of new budget line, if
consumer’s current income grows up to 600 hryvnias, the price of product X does not
change, but the price of goods Y grows up to 30 hryvnias.

Problem 8. Anita consumes both pizza and Pepsi. The following table shows
the amount of utility she obtains from different amounts of these two goods:
Pizza Pepsi
Quantity Utility Quantity Utility
4 slices 115 5 cans 63
5 slices 135 6 cans 75
6 slices 154 7 cans 86
7 slices 171 8 cans 96
Suppose Pepsi costs $0.50 per can, pizza costs $1 per slice, and Anita has $9 to
spend on food and drink. What combination of pizza and Pepsi will maximize her
utility?

Situation 3. Bruno can spend his income on two different goods: Beyoncé
albums and notebooks for his class notes. For each of the following three situations,
decide if the given consumption bundle is within Bruno’s consumption possibilities.
Then decide if it lies on the budget line or not.
a) albums cost $10 each, and notebooks cost $2 each. Bruno has income of $60.
He is considering a consumption bundle containing 3 albums and 15 notebooks.
b) albums cost $10 each, and notebooks cost $5 each. Bruno has income of
$110. He is considering a consumption bundle containing 3 albums and 10
notebooks.
c) albums cost $20 each, and notebooks cost $10 each. Bruno has income of
$50. He is considering a consumption bundle containing 2 albums and 2 notebooks.

Topic 6. Microeconomic model of a firm

Situation 1. For each of the following, state whether economists would consider
it a resource, and if they would, identify which of the four types of resources the item
is.
a) A computer used by the policeman to track the whereabouts of suspected
criminals.
b) The office building in which the policeman works.
c) The time that a policeman spends on a case.
d) A farmer’s tractor.
e) The farmer’s knowledge of how to operate the tractor.
f) Crude oil.
g) A package of frozen vegetables.
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 h) A food scientist’s knowledge of how to commercially freeze vegetables.
i) The ability to bring together resources to start a frozen food company.
j) Plastic bags used by a frozen food company to hold its product.

Problem 1. Alternative ways of laundering 100 shirts are it the table.

Metho Labour Capital

d (hours) (machines)
A 1 10
B 5 8
C 20 4
D 50 1

a) Which methods are technologically efficient?

b) Which method is economically efficient if the hourly wage rate and the
implicit rental rate of capital are as follows:
1) Wage rate $1, rental rate $100?
2) Wage rate $5, rental rate $50?
3) Wage rate $50, rental rate $5?

Problem 2.
Assume the total product of two workers is 130 and the total product of three
workers is 150. Find the average product and the marginal product of the third
worker.

Problem 3.
Fill in empty table cells.
Number of TP MP AP
employees, L
1 4
2 7
3 8
4 1
5 3,2

Problem 4.
Firm is going to produce new product X. Free money resources of the firm are
$2800. Firm is going to spend all these resources for 2 inputs: labour and capital.
Inputs productivity and prices of resources are: MPK = 4400 – 420K; MPL = 200 –
20L; PK = $60; PL = $40. Find combination of inputs in the point of firm equilibrium?

Problem 5.
You are currently using three printing presses and five employees to print 100
sales manuals per hour. If the MRTS at this point is -0.5, then how many employees
42
would you be willing to exchange for two more printing presses in order to maintain
current output?

Topic 7. Cost of production and profit of the firm

Situation 1. Until recently, you have worked for a software development firm at
a yearly salary of $35,000. Now, you have decided to open your own business. You
quit your job, cash in a $10,000 savings account (which pays 5 percent interest), and
use the money to buy computer hardware to use in your business. You also convert a
basement apartment in your house, which you have been renting for $250 a month,
into a workspace for your new software firm.
You lease some office equipment for $3,600 a year and hire two part-time
programmers, whose combined salary is $25,000 a year. You also figure it costs
around $50 a month to provide heat and light for your new office.
a) What are the total annual explicit costs of your new business?
b) What are the total annual implicit costs?
c) At the end of your first year, your accountant cheerily informs you that your
total sales for the year amounted to $55,000. She congratulates you on a profitable
year. Are her congratulations warranted? Why yes or why not?

Problem 1.
For Elliot’s dog walking service, the only variable input is labor. Elliot’s labor
costs are $300 a day and his service walks 30 dogs per day. To walk 31 dogs per day,
his labor costs increase to $305 a day. Find the marginal cost of walking that 31st
dog?

Problem 2.
The framing gallery frames posters. The framing gallery has total fixed costs of
$500. The framing gallery's average variable cost is $20 and its average total cost is
$25. Find the total costs of framing gallery and calculate how many posters is the
framing gallery currently framing?

Problem 3.
Fill in empty table cells.
Q TC FC VC AFC AVC ATC MC
100 300 11
200 7
300 6

Problem 4.
Determine the average fixed costs, average variable costs and average total costs
of production of the firm per year on the basis of the following data: costs of raw
materials are 250 thousand hryvnias; costs for lighting of administrative offices – 20
43
thousand hryvnias; costs for transportation of raw materials within the company - 40
thousand hryvnias; labor costs of the company's management – 90 thousand hryvnias;
labor costs of workers who are paid on a piecework basis – 400 thousand hryvnias;
depreciation expenses – 500 thousand hryvnias; office accommodation rent – 20
thousand hryvnias; quantity of output – 10 thousand pieces.

Problem 5.
The garment company with a monthly output of Q = 4000 suits has a total fixed
costs of 400 thousand hryvnias per month. Labor is the only variable input and the
cost of it is 5500 hryvnias per hour with the volume of 20 suits per hour. Calculate
the average total costs and average variable costs of the company.

Problem 6.
In the short run the company produces 500 units of product. The average
variable cost is $ 20, and the average fixed cost is $ 8. Calculate the total cost and
average total cost of the firm.

Problem 7.
Firm produces goods with the help of 4 workers. Average product of labour is
35 units per day. Wage of each worker is 90 doll. per day. Total fixed costs are 230
doll. Labour is the only variable input. Find average costs of the firm and average
variable costs.

Topic 8. Model of a firm in a perfectly competitive market

Situation 1. In each of the following situations, do you think the industry

described will be perfectly competitive or not? Explain your answer.
a) There are two producers of aluminum in the world, commodities are sold in
many places.
b) The price of natural gas is determined by global supply and demand. A small
share of that global supply is produced by a handful of companies located in the
North Sea.
c) Dozens of designers sell high-fashion clothes. Each designer has a distinctive
style and a loyal clientele.

Situation 2. Which of the following events will induce firms to enter an

industry? Which will induce firms to exit? When will entry or exit cease? Explain
your answer.
a) A technological advance lowers the fixed cost of production of every firm in
the industry.
b) The wages paid to workers in the industry go up for an extended period of
time.
c) A permanent change in consumer tastes increases demand for the good.
d) The price of a key input rises due to a long-term shortage of that input.
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 Situation 3. A student says, “My economics professor must be confused. First
he tells us that in perfect competition, the demand curve is completely flat –
horizontal. But then he draws a supply and demand diagram that has a downward-
sloping demand curve.” Resolve this student’s problem in a single sentence.

Situation 4. Imagine that you are the owner of an ice cream shop. You normally
close at 7:00 pm, but you are considering staying open an additional hour. Explain in
which case it would be efficient to stay open till 8:00 p.m.

Situation 5. “A profit-maximizing competitive firm will produce the quantity of

output at which price exceeds cost per unit by the greatest possible amount.” True or
false? Explain briefly.

Situation 6. Assume that the market for cardboard is perfectly competitive (if
not very exciting). In each of the following scenarios, should a typical firm continue
to produce or should it shut down in the short run?
Draw a diagram that illustrates the firm’s situation in each case.
a) Minimum ATC = $2.00
Minimum AVC = $1.50
Market price = $1.75
b) MR = $1.00
Minimum AVC = $1.50
Minimum ATC = $2.00

Problem 1.
A firm in a perfectly competitive market produces notebooks, the price of each
is 3 hryvnias. The average total costs of the firm – 4,8 hryvnias. Monthly sales
volume – 2000 units. Calculate the firm’s economic profit.

Problem 2
A firm in a perfectly competitive industry is producing produces 12,000 watches
per year at the average total cost of $55. Find the economic profit of the firm, if it
sells watches for $60 per unit.

Problem 3.
A firm in a perfectly competitive industry is producing 50 units, it is profit
maximizing quantity. Industry price is $2, total fixed costs are $25, and total variable
costs are $40. Calculate the firm’s economic profit.

Problem 4.
A firm in a perfectly competitive market is planning to publish a textbook
2000
“Economics”. The average total cost for the production of the book is $ 4 + Q
,

45
where Q is the number of textbooks published during the year. The planned price of
the book is $8. Find the annual circulation of the textbook so that the firm operates
without losses and makes only normal profits.

Problem 5.
Calculate the accounting and economic profits of the firm on the basis of the
following data: sales volume – 5 thousand units, the price of each is $350; explicit
costs – $1.5 million; normal profit – $1 million.

Problem 6.
The function of the total costs of a firm in a perfectly competitive market:
ТС = 4Q + 2Q2. Find the economic profit of the firm if it produces 35 units of
product, and the market price per unit is $46.

Topic 9. Model of a firm in the markets of imperfect competition

Situation 1. Suppose the government is considering extending the length of a

patent from 20 years to 30 years.
a) How would it change the incentive to invent new products?
b) How would it change the length of time during which consumers have to pay
higher prices?

Situation 2. Use the accompanying total revenue schedule of Emerald, Inc., a

monopoly producer of 10-carat emeralds, to calculate the answers to parts a and b.
Then answer part c.

Quantity of emeralds demanded Total revenue, in $

1 100
2 186
3 252
4 280
5 250

a) The demand schedule

b) The marginal revenue schedule
c) What additional information is needed to determine Emerald, Inc.’s profit
maximizing output?

Situation 3. What policy should the government adopt in the following cases?
Explain.
a) Internet service in Anytown, OH, is provided by cable. Customers feel they
are being overcharged, but the cable company claims it must charge prices that let it
recover the costs of laying cable.

46
 b) The only two airlines that currently fly to Alaska need government approval
to merge. Other airlines wish to fly to Alaska but need government-allocated landing
slots to do so.

Situation 4. Explain why each of the following industries is an oligopoly, not a

perfectly competitive industry.
a) The world oil industry, where a few countries near the Persian Gulf control
much of the world’s oil reserves.
b) The microprocessor industry, where two firms, Intel and its bitter rival AMD,
dominate the technology.
c) The wide-bodied passenger jet industry, composed of the American firm
Boeing and the European firm Airbus, where production is characterized by
extremely large fixed cost.

Problem 1.
The monopolist can sell 20 units of goods at a price of $160 per unit, but the sale
of 21 units will reduce the price to $159. Calculate the marginal revenue of increasing
sales from 20 to 21 units.

Problem 2.
With the output of 600 units per month, the monopolist has the average variable
cost of $400 and the average fixed cost of $300. The function of demand for the
products of the monopolist is: РD = 200 – 2Q, where РD is the demand price for the
product, and Q is the output. Find the economic profit of the monopoly firm.

Problem 3.
The function of the total costs of the monopolist is: TC = 400 + 8Q, where Q is
the output (in units) produced per month. Demand function for the products of the
monopolist firm is: РD = 200 – 2Q, where РD is the demand price for the product (in
dollars). If a monopolist produces 10 units of output per month, how will its
economic profit change with an increase of output by 1 unit?

Problem 4. The accompanying table presents market share data for the breakfast
cereal.
Company Market Share, %
Kellogg 30
General Mills 26
PepsiCo (Quaker Oats) 14
Kraft 13
Private Label 11
Other 6
a) Use the data provided to calculate the Herfindahl–Hirschman Index (HHI) for
the market.

47
 b) Based on this HHI, what type of market structure is the breakfast cereal
market?

Topic 10. Factor markets

Situation 1. In the nation of Barronia, the market for construction workers is

perfectly competitive. Explain what would happen to the equilibrium wage rate and
equilibrium employment of construction workers under each of the following
circumstances:
a) Young adults in Barronia begin to develop a taste for living in their own
homes and apartments, instead of living with their parents until marriage.
b) Construction firms begin to use newly developed robots that perform many
tasks formerly done by construction workers.
c) Because of a war in neighboring Erronia, Erronian construction workers flee
across the border to Barronia.
d) There is an increased demand for automobiles in Barronia, and Barronian
construction workers have the skills necessary to produce automobiles.
e) Tuition at trade schools that qualify Barronians for construction work become
cheaper.

Situation 2. You are considering buying a new laser printer to use in your part-
time desktop publishing business. The printer will cost $380, and you are certain it
will generate additional net revenue of $100 per year for each of the next five years.
At the end of the fifth year, it will be worthless. Answer the following questions:
a) What is the value of the printer if you could lend funds safely at an annual
interest rate of 10 percent? Is the purchase of the printer justified?
b) Would your answer to part (a) change if the interest rate were 8 percent? Is
the purchase justified in that case? Explain.
c) Would your answer to part (a) change if the printer cost $350? Is the purchase
justified in that case?
d) Would your answer to part (a) change if the printer could be sold for $500 at
the end of the fifth year? Is the purchase justified in that case? Explain.

Problem 1.
Demand for land is determined by the function: D L=2000−4 R , where S L is the
quantity of land (in ha), R – land rent from 1 ha (in hryvnias).
Find:
1) the level of land rent, if the supply of land is 1500 ha;
2) the price of 1 hectare of land, if the bank interest rate is 6%.

Problem 2.
The market supply of land is characterized by the function: S L = 60 (acres of
land). The function of market demand for land is: D L = 80 – P. The increase in
demand for food has increased market demand for land. The new function of market
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demand for land is: D L = 200 – P. How the land rent has changed if the interest rate
has decreased from 10% to 5% per annum?

Методичні вказівки до семінарських занять з дисципліни

«Мікроекономіка» для іноземних студентів ІІ курсу першого (бакалаврського)
рівня освіти денної форми навчання всіх спеціальностей

Укладач: Катерина Олегівна Шатненко

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Підписано до друку __________________ Зам._____________
Формат паперу 60 Х 84 1/16 Обсяг ____1,51__ авт. арк.
Тираж______ прим. ОНЕУ, м. Одеса, вул. Преображенська, 8

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