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Problems Sessions 1-4

The document contains 12 practice questions about microeconomics concepts like utility maximization, budget constraints, and consumer choice. Each question is multiple choice with 5 answer options. An answer key is provided with the correct answer for each question. The questions cover topics such as utility functions, indifference curves, budget constraints, and the impact of price changes on consumer demand.

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Vivek Kumar
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253 views5 pages

Problems Sessions 1-4

The document contains 12 practice questions about microeconomics concepts like utility maximization, budget constraints, and consumer choice. Each question is multiple choice with 5 answer options. An answer key is provided with the correct answer for each question. The questions cover topics such as utility functions, indifference curves, budget constraints, and the impact of price changes on consumer demand.

Uploaded by

Vivek Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MICROECONOMICS FOR MANAGERS

PRACTICE QUESTIONS

Q1. Hans has 27 dollars, which he decides to sp end on x and y . Commodity x costs $16 p er unit

and commodity y costs $10 per unit. He has the utility function U (x; y ) = 5𝑥 2 + 2𝑦 2 . and he can

purchase fractional units of x and y .

(a) Hans will choose only x.

(b) Hans will choose only y .

(c) Hans will choose some of each commodity, but more y than x.

(d) Hans will choose some of each commodity, but more x than y .

(e) Hans will choose equal amounts of the two commodities

Q2. Wanda Littlemore's utility function is U (x; y ) = 𝑥 + 63𝑦 + 3𝑦 2 . Her income is 184. If the
price of x is 1 and the price of y is 33, how many units of good x will Wanda demand?

(a) 17

(b) 22

(c) 24

(d) 0

(e) 19

Q3. Peter consumes no commodities other than Miller Lite and Bud Light. His annual budget for
these two commodities is described by the equation 5x + 30y = 300 where x is Miller Lite and y
is Bud Light. Peter considers 2 units of Bud Light to be perfect substitutes for 6 units of Miller
Lite. Which of the following is true?

(a) He will consume 60 units of Miller Lite per year.


(b) He will consume 10 units of Bud Light per year.

(c) He will consume 14 units of Bud Light per year.

(d) He will consume 12 units of Miller Lite per year.

(e) He is indifferent between any two bundles that use up his entire income.

Q4. Paul's utility function is min{x + 3y, 3x + y}. Simon's utility function is min {3x + 9y, 9x +
3y}. Paul and Simon have the same income and face the same prices. Which of the following is
true?

(a) Paul and Simon will demand the same amount of good x.

(b) Paul will demand more y than Simon.

(c) Simon will demand more y than Paul.

(d) Each will prefer the other's consumption bundle to his own.

(e) None of the above.

Q5. Ollie has a utility function U (x; y ) = (x + 2)(y + 3). The price of x is 1 and the price of y is1.
When he maximizes his utility subject to his budget constraint, he consumes positive amounts of
both goods.

(a) Ollie consumes exactly as much x as y .

(b) Ollie consumes one more unit of x than he consumes of y .

(c) Ollie consumes one more unit of y than he consumes of x.

(d) Ollie consumes two more units of x than he consumes of y .

(e) None of the above.

Q6. Jane's utility function is U (x; y ) = x + 2y ; where x is her consumption of go o d X and y is


her consumption of good Y . Her income is 2. The price of Y is 2. The cost per unit of X depends
on how many units she buys. The total cost of x units of X is the square root of x.

(a) The bundle (1/4; 3/4) is Jane's utility maximizing choice, given her budget.

(b) The bundle (1; 1/2) is Jane's utility maximizing choice, given her budget.
(c) Given her budget, Jane would maximize her utility by spending all of her income on good x.

(d) Given her budget, Jane would maximize her utility by spending all of her income on good y.

(e) None of the above statements are true.

Q7. Howard has the utility function U (x; y ) = x ? (1=y ). His income is $30. Which of the
following statement is true?

(a) Howard does not like good y .

(b) Howard has a bliss point.

(c) If the price of x is $4 and the price of y is $1, Howard will buy 2 units of y.

(d) Howard will buy good y only if it is cheaper than good x.

(e) None of the above.

Q8. Coke and Pepsi are perfect substitutes for Mr. Drinker and the slop e of his indifference

curves is minus 1. One day he bought 2 cans of Coke and 20 cans of Pepsi. (The cans of both

drinks are the same size.)

(a) Coke is less expensive than Pepsi.

(b) Coke is more expensive than Pepsi.

(c) Coke and Pepsi cost the same.

(d) Mr. Drinker prefers Pepsi to Coke.

(e) None of the above.

Q9. Lorenzo lives on x and y alone. His utility function is U (x; y ) = min{3x + 4y , 7y }. The
prices of both goods are positive. Which of the following statements is necessarily true?

(a) He will never buy more x than y .

(b) He will buy equal amounts of the two go o ds.

(c) He will always buy more y than x.

(d) He will always buy more x than y .


(e) More than one of the ab ove.

Q10. Clara's utility function is U (X ; Y ) = (X + 2)(Y + 1). If her marginal rate of substitution is -
4 and she is consuming 14 units of Good X ; how many units of Good Y must she be consuming?

ANSWER:

Q11. Elmer's utility function is U (x; y ) = min{x, y2}. If the price of x is 25 and the price of y is 15,
and if Elmer chooses to consume 7 units of Y ; what must his income be?

Q12. Charlie has a utility function U (x,y) = xy. the price of apples (x) is 1 and the price of
Bananas (y) is 2. If Charlie's income were 120, how many units of bananas would he consume if
he chose the bundle that maximized his utility subject to his budget constraint?
ANSWER KEY:

1. b
2. e
3. a
4. a
5. b
6. c
7. c
8. c
9. a
10. 63
11. 1330
12. 30

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