Question 1

In a perfectly competitive market, a firm faces a market price of $$10. Its average total cost (ATC) at the profit-maximizing output is 8$$, and it sells 100 units. What is the firm's economic profit?

Accepted Answer

$$\200$

Question 2

Which of the following best describes the demand curve faced by an individual firm in a perfectly competitive market?

Accepted Answer

Perfectly elastic (horizontal)

Question 3

A firm in a perfectly competitive market finds that its marginal cost (MC) is $$12, while the market price is 10. $$What should the firm do to maximize profit?

Accepted Answer

Decrease output

Question 4

Suppose a monopolistically competitive firm is earning economic profits in the short run. What will happen in the long run?

Accepted Answer

New firms will enter, driving economic profit to zero

Question 5

Which of the following is true about the relationship between price and marginal revenue for a monopolistically competitive firm?

Accepted Answer

$$P \u003e MR$$

Question 6

A perfectly competitive firm should shut down in the short run if:

Accepted Answer

$$P \u003c AVC$$

Question 7

In the long-run equilibrium of a perfectly competitive market, which of the following is true?

Accepted Answer

$$P = ATC = MC$$

Question 8

Which of the following is NOT a characteristic of an oligopoly?

Accepted Answer

Firms are price takers

Question 9

In the context of game theory, what is a Nash equilibrium?

Accepted Answer

A situation where each firm chooses the best strategy given the other firm's strategy

Question 10

Which of the following best explains why monopolistic competition is not allocatively efficient?

Accepted Answer

$$P \u003e MC at $$the profit-maximizing output

Question 11

A firm in a perfectly competitive market is producing where $$P = MC = ATC. $$What is the firm's economic profit?

Accepted Answer

Zero

Question 12

Which of the following is an example of a barrier to entry in an oligopolistic market?

Accepted Answer

Patents

Question 13

Suppose a firm in a perfectly competitive market has $$P = 15$$, $$ATC = 18$$, and $$AVC = 12. $$What should the firm do in the short run?

Accepted Answer

Continue producing, even though it is incurring a loss

Question 14

Which of the following is a method firms in monopolistic competition use to differentiate their products?

Accepted Answer

Branding and advertising

Question 15

If a perfectly competitive firm is producing at a level where $$MC \u003c P$$, what should it do?

Accepted Answer

Increase output

Question 16

Which of the following is NOT one of the Five Competitive Forces in the model used to analyze industry competitiveness?

Accepted Answer

Government regulation

Question 17

In the Prisoner's Dilemma, why do firms often fail to cooperate even though cooperation would make them both better off?

Accepted Answer

Each firm has an incentive to cheat for individual gain

Question 18

Which of the following statements about long-run equilibrium in monopolistic competition is correct?

Accepted Answer

Firms earn zero economic profit but do not produce at minimum ATC

Question 19

Suppose a firm in a perfectly competitive market is considering shutting down. If the market price is $$5$$, average variable cost is $$6$$, and average total cost is $$10$$, what should the firm do?

Accepted Answer

Shut down, because $$P \u003c AVC$$

Question 20

Which of the following best describes productive efficiency in perfect competition?

Accepted Answer

Production at the lowest point on the ATC curve

Market Structures: Perfect Competition, Monopolistic Competition, and Oligopoly

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