epbm 7 micro q paper

8/3/2019 EPBM 7 Micro Q Paper

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.Indian Institute of Management Calcutta

EPBM VIIMicroeconomics

Time: 1 hour Total- 40marksMarks obtained. _

Name. __ Reg.N 00 _

Closed Book.Answer all questions in the allotted spaces in the question paper itself. Make sure to writeyour name and registration number on the question paper before handing it in. Answersmarked out with pencil will not be accepted,All rough-work should be done on the question paper itself.


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Multiple Choice QuestionsTime: 1 hourSelect only one alternative as the "best" answer and circle it. If you select none or morethan one, no marks will be given. .

Marks: .2x20=40

1. A microeconomist might study each of the following EXCEPTa. the effects of rent control on housing in New Delhi.b. how a college student makes financial decisions.c. how tariffs on shoes affects the shoe industry.d. the effect on the economy when unemployment rates change.2. If Rahul receives a decrease in his pay, wewould expecta. Rahul's demand for each good he purchases to remain unchanged.b. Rahul's demand for normal goods to increase.c. Rahul's demand for luxury goods to increase.d. Rahul's demand for inferior goods to increase.3. Suppose that a decrease in the price of X results in less of good Y sold. This wouldmean that X and Yare3. complementary goods.b . normal goods.c. substitute goods.d. inferior goods.4. You have decided to purchase a new Santro. A friend tells you that Hyundai will beoffering a Rs.lO,OOOrebate on Santros starting next month. As a result of this informationyour demanda. could shift either right or left.

b. for Santros shifts right today.c. curve will be unaffected.d. for Santros shifts left today.

5. Th . b d h fi 1 1 blnex quesnon IS ase 00. teo owmgta e:An Increase in Supply A Decrease in SupplyAn Increase in A BDemandA Decrease in C DDemand

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

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11. Abraham wants to start his own business. The business he wants to start will requirethat he purchase a factory that costs RsJOO,OOO.To finance this purchase, he will useRs.I00,000 of his own money, on which he has been earning 10 percent interest. Inaddition, he will borrow Rs.200,OOO, and he will pay 12 percent interest on that loan.For the first year of operation, what is the explicit cost of purchasing the factory?a. Rs.12,000

b. Rs.20,OOOc. Rs.24,OOOd. R s.44,O O O

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6. A price ceiling will only be binding if it is seta. equal to equilibrium price.b. above equilibrium price.c. below equilibrium price.d. A price ceiling is never binding in a free market system.

7. Suppose the price of a packet of pins is reduced from Rs.I.45 to Rs.l.2S and, as aresult, the quantity of pins demanded increases from 2,000 to 2,200 packets. Usingthe midpoint (arc-elasticity) method, the price elasticity of demand for pins in th e. . .given pnce range ISa. 2.00.b. 1.55.c. 1.00.d .. 64.

o8. If a change in the price of a good results in no change in total revenue,a. the demand for the good must be elastic ..

b. the demand for the good must be inelastic.c. the demand for the good must be unit elastic.d. buyers must not respond very much to a change in price.

9. If the cross-price elasticity of two goods is negative, then those two goods area. substitutes.b. complements.c. normal goods.d. inferior goods.

10. When a good is excludable it means thata. one person's use of the good diminishes another person's ability to use it.b. people can be prevented from using the good.c. no more than one person can use the good at the same time.d. everyone will be excluded from obtaining the good.


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12. Let L represent the number of workers hired by a finn and let Q represent thatfirm's quantity of output. Assume two points on the firm's production functionare (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the13th worker is

a. 8 units of output.b. 10 units of output.c. 122 units of output.d. 130 units of output. ."

13 . On a 100~acre farm, a fanner is able to produce 3,000 tons~(wh~~t when he hires 2workers. He is able to produce 4,400 tons of wheat when he hires 3 workers. Whichof the following possibilities is consistent with the property of diminishing marginalproduct?a. The farmer is able to produce 5,600 tons of wheat when he hires 4 workers.b. The farmer is able to produce 5,800 tons of wheat when he hires 4 workers.c. The farmer is able to produce 6,000 tons of wheat when he hires 4 workers.d. All of the above are correct. . p)~~

14. A certain firm produces and sells staplers. Last year, it produced 5,000 staplers andsold each stapler for Rs.8. In producing the 5,000 staplers, it incurred variable costs ofRs.30,000 and a total cos~ ofRs.55,000.In producing the 5,000 staplers, the finn's average fixed cost wasa. R s.3 . .

"b . Rs.4.c. Rs.5.d. Rs.8.

15. When a firm in a competitive market produces 10 units of output, it has a marginalrevenue of Rs.8.00. What would be the finn's total revenue when it produces 6 units ofoutput? .

a . Rs.4.80b. Rs.6.00c. Rs.48.00d. Rs.60.00

16. A monopoly firm has the total cost function TC =2Q + 41. It faces the inversedemand function P = 8 - 2Q.8. If regulation requires the finn to set a price equal to marginal cost, then it breakseven., !:~~ ."'..... :~-::.:I~:...~;_~ ~~;:~~~ l" "l~ . ; ..: '~ c":, '" '.-..r.:~: ~t :1~..~ k : . . : ~ ~~ . ~~;''''


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17. The shape of the average total cost curve above reveals information about the natureof the barrier to entry that might exist in a monopoly market.

Which of the following monopoly types best coincides with the figure?. a. ownership of a key resource by a single firmb. natural monopolyc. government-created monopoly.d. None of the above are correct.

18. Ayesha, a homeowner, buys too few fire extinguishers relative to what her insurancecompany would prefer .a. This describes an adverse-selection problem.b. This describes a moral-hazard problem.c. Ayesha can be regarded as a principal; her insurance company can be regarded asan agent.d. Ayesha must be regarded as irrational in that her benefits from buying fireextinguishers are just as great as the insurance company's benefits.

19. Lyngdoh and Modi are roommates in a hostel. How clean their room is depends onwhether they "work" or shirk". Their payoffs are as follows: Both shirk: Each gets 2. Oneworks, the other shirks: The player who shirks gets 3, the other gets 1. Both work: Eachgets 4.In a sequential move game,(a) ; t " L.>'11~,d~! ~ i~:(",,:C:S fl r~ t. ' i . L ; ~ , ~ : b~',:!':'l c p~.~t~.:c:~('!";;.! 1 ! ib ri u lr. is t : ! : ~l~i u wh iC ! ~ l~".>i~' ~"~l: irk" .(b) if Lyngdoh moves first, the subgame perfect equilibrium is one in which both "work".(c) if Modi moves first, the subgame perfect equilibrium is one in which both "shirk".(d) if Modi moves first, the subgame perfect equilibrium is one in which Modi "shirks"

and Lyngdoh "works".

Costs ($)

oAverage total cost

Quantity of Output

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20. Each year the United States considers renewal of Most Favored Nation (MFN) .trading status with China. Historically, legislators have made threats of not renewingMFN status because of human rights abuses in China, The non renewal of MFN tradingstatus is likely to involve some retaliatory measures by China. The Game below reflectsthe potential economic gains associated with a two-outcome game in which China mayimpose trade sanctions against U.S. firms and the United States may not renew MFNstatus with China. The following table contains the dollar value of all trade flow benefitsto the United States and China under two trade-relationship scenarios ..

,ChinaImpose trade sanctions Do not impose tradeagainst U.S. firms sanctions against U.S.firms

United Don't renew MFN U.S. trade value =$65 b U.S. trade value = $140 bStates status with China China trade value = $75 b China trade value = $5 bRenewMFN U.S. trade value = $35 b U.S. trade value = $130 bstatus with China China trade value = $285 b China trade value = $275 b

Pursuing its own best interests, China will impose trade sanctions against U.S. firmsa. only if the U.S. does not renew MFN status with China.b. only if the U.S. renews MFN status with China.c.. regardless of whether the U.S. renews MFN status with China.d. None of the above are correct; in pursuing its own best interests, Chine will in nocase impose trade sanctions against U.S. firms. .

epbm 7 micro q paper

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