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Iloveyou

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Submitted By davidthanh123
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Principles of Microeconomics

Solutions to
Sample Final Examination

Part A: Multiple Choice Questions

1. E 2. C - There is insufficient information to determine which choice she should make, but an optimal choice should include the opportunity cost of the $75,000 salary offer if the management position is the best alternative to her current position. 3. A - We must give up something in order to get more of another. Note that increasing opportunity costs tells us the shape of the curve, not why we have a negative slope. 4. A 5. C 6. B - Set 6 = 10 –2×Q, solve for Q = 2. Thus ε =(1/-2)×(6/2) = |-1.5|. 7. A - Set 5 = 20 –5×Q, solve for Q = 3. Thus, TR = P×Q = 5×3 = 15. 8. C - Since a perfectly competitive firm has no control over the market price, the only decision to make is how much to produce. 9. C 10. E 11. C; that is, inelastic demand. 12. A 13. C 14. C 15. B 16. A 17. E 18. E 19. C 20. C 21. D 22. E 23. D 24. B 25. C 26. C 27. D 28. C 29. D 30. B

Part B: Short-Answer Questions

B1. Rational Spending Rule

David has two leisure activities – riding his new Triumph “Bonneville” motorcycle and growing award-winning orchids. David estimates that an hour’s worth of riding his motorcycle costs him $15 while an hour’s worth of orchid growing costs him $5.

a) Assume David spends $100.00 per month on these two activities, “consuming” them in full hours only. How many hours/month will he ride his motorcycle? How many hours/month will he grow orchids? Explain your answer.

The Rational Spending Rule stipulates that spending is allocated across goods so that the marginal utility per dollar is the same for each good. Namely,

[pic]

Where, MUM = the marginal utility of motorcycle riding; MUO = the

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