MICROECONOMICS Practice Questions

Short Response 1.. Consider each of the following statements; is it TRUE or FALSE? You do not need to explain your answer. (15%) a) Jimmy is an elite athlete, and has a choice between three careers: he can join Major League Baseball and make $1 million per year, he can join the National Hockey League and make $2 million per year, or he can join the National Football League and make $2 million per year. Assuming he only cares about monetary compensation, Jimmy’s opportunity cost of playing in the NFL is $2 million per year. False b) I have a choice between three activities on Friday night: drinking at the pub with my friends, going bowling, or sitting at home and getting high. I hate getting high at home, but I enjoy the other two activities. Therefore, the opportunity cost of going bowling for me is the combined satisfaction I’d receive if I went to the pub with my friends, and got high at home. True c) The Production Possibilities Frontier shows the opportunity cost of producing one good in terms of the other. True d) Free trade is always good, since it leads to an increased standard of living and better relations between countries. False e) The Production Possibilities Frontier is always concave (that is, curved outward). False 2. Consider the following Figure, which shows a Production Possibilities Frontier for the Planet of Dune. Are each of the following points Feasible or Infeasible? If they’re feasible, then are they productively efficient, or productively inefficient? You do not need to explain your answer. (15%) a) Point A. Feasible and Efficient b) Point B. Feasible and Efficient c) Point C. Not Feasible d) Point D. Not Feasible e) Point E. Feasible and Inefficient