PRINCIPLES OF MICROECONOMICS MAIN EXAMINATION
2026 QUESTIONS AND SOLUTIONS RATED A+
✔✔Will the tax increase the villagers' welfare? - ✔✔It depends on whether the benefit of
funding the school exceeds the deadweight loss in the corn market.
✔✔What are increasing marginal costs? - ✔✔Increasing marginal costs occur when
producing additional units of a good requires more resources, leading to higher costs
per unit.
✔✔If the equilibrium price of bread is $3, how many loaves will Maria produce each
day? - ✔✔Maria will produce 500 loaves each day.
✔✔What will be Maria's average cost? - ✔✔Maria's average cost will be $2.50.
✔✔How much profit will Maria earn each day? - ✔✔Maria will earn $400 each day.
✔✔Will firms enter or exit the market if they have the same costs as Maria? - ✔✔Firms
will enter because there is economic profit.
✔✔What will the price of bread be in the long run? - ✔✔The price of bread will be $2.50.
✔✔How many loaves will Maria sell each day in the long run? - ✔✔Maria will sell 800
loaves each day.
✔✔How much profit will Maria earn each day in the long run? - ✔✔Maria will earn $0 in
the long run.
✔✔Would the total surplus be larger if Maria became a monopolist? - ✔✔No, because
the consumer surplus would be larger, but the producer surplus would be much smaller.
✔✔How many thousand board feet will the logging firm harvest at a price of $1,500? -
✔✔The firm will harvest 750 thousand board feet.
✔✔How much revenue will the logging firm earn? - ✔✔The logging firm will earn
$1,125,000.
✔✔Is this outcome efficient? - ✔✔No, because the total surplus is not maximized.
✔✔What is the optimal Pigovian tax per thousand board feet? - ✔✔The optimal
Pigovian tax would be $1,000.
✔✔If the optimal Pigovian tax were adopted, how much tax revenue would it raise? -
✔✔It would raise $500,000 in tax revenue.
2026 QUESTIONS AND SOLUTIONS RATED A+
✔✔Will the tax increase the villagers' welfare? - ✔✔It depends on whether the benefit of
funding the school exceeds the deadweight loss in the corn market.
✔✔What are increasing marginal costs? - ✔✔Increasing marginal costs occur when
producing additional units of a good requires more resources, leading to higher costs
per unit.
✔✔If the equilibrium price of bread is $3, how many loaves will Maria produce each
day? - ✔✔Maria will produce 500 loaves each day.
✔✔What will be Maria's average cost? - ✔✔Maria's average cost will be $2.50.
✔✔How much profit will Maria earn each day? - ✔✔Maria will earn $400 each day.
✔✔Will firms enter or exit the market if they have the same costs as Maria? - ✔✔Firms
will enter because there is economic profit.
✔✔What will the price of bread be in the long run? - ✔✔The price of bread will be $2.50.
✔✔How many loaves will Maria sell each day in the long run? - ✔✔Maria will sell 800
loaves each day.
✔✔How much profit will Maria earn each day in the long run? - ✔✔Maria will earn $0 in
the long run.
✔✔Would the total surplus be larger if Maria became a monopolist? - ✔✔No, because
the consumer surplus would be larger, but the producer surplus would be much smaller.
✔✔How many thousand board feet will the logging firm harvest at a price of $1,500? -
✔✔The firm will harvest 750 thousand board feet.
✔✔How much revenue will the logging firm earn? - ✔✔The logging firm will earn
$1,125,000.
✔✔Is this outcome efficient? - ✔✔No, because the total surplus is not maximized.
✔✔What is the optimal Pigovian tax per thousand board feet? - ✔✔The optimal
Pigovian tax would be $1,000.
✔✔If the optimal Pigovian tax were adopted, how much tax revenue would it raise? -
✔✔It would raise $500,000 in tax revenue.
