CBE Microeconomics 3

Question 1

Which of the following correctly describes a Giffen good?

Accepted Answer

An inferior good whose demand curve slopes upward

Answer

Giffen goods are inferior goods where the negative income effect of a price increase outweighs the substitution effect, causing quantity demanded to rise with price.

Question 2

Economic profit equals zero in the long run for a perfectly competitive firm because:

Accepted Answer

Free entry and exit drive price to minimum average total cost

Answer

Positive profits attract new entrants who increase supply and drive price down to the minimum ATC, eliminating economic profit.

Question 3

The marginal rate of technical substitution (MRTS) measures:

Accepted Answer

The rate at which capital can replace labor while holding output constant

Answer

MRTS = −ΔK/ΔL along an isoquant, representing how much capital is needed to replace one unit of labor without changing output.

Question 4

Consumer surplus is maximized under which market structure?

Accepted Answer

Perfect competition

Answer

Perfect competition sets P = MC at minimum ATC, producing the highest output and lowest price, thereby maximizing consumer surplus.

Question 5

An increase in the wage rate will shift a firm's isocost line by:

Accepted Answer

Rotating it inward along the labor axis, keeping the capital intercept fixed

Answer

A higher wage raises the cost of labor, reducing the maximum labor affordable for a given budget while leaving the capital intercept unchanged.

(CBE) Certified Business Economist Practice Test

(CBE) Certified Business Economist Practice Test

CBE Microeconomics 3