CEA - Certified Economic Analyst Microeconomic Principles Questions and Answers

Question 1

A firm in a perfectly competitive market observes that the market price for its product is $20.
The firm's marginal cost is $25, and its average total cost is $22.
To maximize profits in the short run, what should this firm do?

Accepted Answer

Decrease its output because marginal cost is greater than price.

Answer

Increase its output to lower its average total cost.

Answer

Shut down its operations immediately.

Answer

Continue to produce at the current level since it is covering its average variable costs.

Question 2

A local government imposes a tax on the production of a good that generates a negative externality. Which of the following is the most likely outcome of this policy?

Accepted Answer

The supply curve for the good will shift to the left, leading to a higher price and lower quantity.

Answer

The market price of the good will decrease, and the quantity produced will increase.

Answer

The demand curve for the good will shift to the left, leading to a lower price and lower quantity.

Answer

Both the supply and demand curves will shift, resulting in an ambiguous change in price and quantity.

Question 3

A consumer is allocating their budget between two goods, X and Y. The marginal utility of the last unit of good X consumed is 40 utils, and its price is $8. The marginal utility of the last unit of good Y consumed is 30 utils, and its price is $5. To maximize total utility, what should this consumer do?

Accepted Answer

Purchase more of good Y and less of good X.

Answer

Purchase more of good X and less of good Y.

Answer

Continue to consume the current amounts of both goods.

Answer

Purchase less of both goods.

Question 4

A manufacturing company can produce either 100 units of product A or 80 units of product B with its current resources. If the company chooses to produce 60 units of product A, what is the opportunity cost in terms of units of product B?

Accepted Answer

32 units of B

Answer

48 units of B

Answer

80 units of B

Answer

50 units of B

Question 5

If the price of a product increases by 10%, and the quantity demanded decreases by 15%, the price elasticity of demand for this product is:

Accepted Answer

Elastic

Answer

Unit elastic

Answer

Perfectly inelastic

Answer

Inelastic

Question 6

Which of the following is a key characteristic that distinguishes a monopoly from a perfectly competitive market?

Accepted Answer

Significant barriers to entry.

Answer

The presence of many buyers.

Answer

The goal of profit maximization.

Answer

Production of a homogeneous product.

A firm in a perfectly competitive market observes that the market price for its product is $20.The firm's marginal cost is $25, and its average total cost is $22.To maximize profits in the short run, what should this firm do?

A firm in a perfectly competitive market observes that the market price for its product is $20.
The firm's marginal cost is $25, and its average total cost is $22.
To maximize profits in the short run, what should this firm do?