Question 1

Which of the following best describes the main difference between pure competition and monopolistic competition?

Accepted Answer

Firms in pure competition sell identical products, while firms in monopolistic competition sell differentiated products.

Question 2

Suppose a firm in pure competition is maximizing profit. If the market price is $$10, marginal cost (MC) is 10$$, and average total cost (ATC) is $8 at the profit-maximizing output, what is the firm's economic profit?

Accepted Answer

$2 per unit

Question 3

Which of the following is a characteristic of a monopoly?

Accepted Answer

There are significant barriers to entry.

Question 4

If a monopolist faces the following demand and marginal revenue curves, what is the relationship between price and marginal revenue for a single-price monopolist?

Accepted Answer

Marginal revenue is always less than price for all units except the first.

Question 5

Which of the following best explains why monopolistic competition is similar to pure competition in the long run?

Accepted Answer

Firms earn zero economic profit in the long run due to free entry and exit.

Question 6

Suppose the elasticity of demand for a product is $$-2.5. If $$the firm increases price by 10%, what is the expected percentage change in quantity demanded?

Accepted Answer

$$-25\%$$

Question 7

If the cross-price elasticity of demand between two goods is $$+1.2$$, what does this indicate about the relationship between the goods?

Accepted Answer

They are substitutes.

Question 8

A firm’s marginal cost (MC) is given by $$MC = 2Q. If $$the market price is $$20$$, what is the profit-maximizing output for a perfectly competitive firm?

Accepted Answer

$$Q = 10$$

Question 9

Which of the following is an example of a positive externality?

Accepted Answer

Vaccination against infectious diseases

Question 10

If the government imposes a price ceiling below the equilibrium price, what is the likely result?

Accepted Answer

A shortage

Question 11

Suppose the marginal product of labor (MPL) is $$8$$ and the price of output is $$5. $$What is the value of the marginal product of labor (VMPL)?

Accepted Answer

$$40$$

Question 12

Which of the following best describes allocative efficiency?

Accepted Answer

Resources are distributed such that the value placed on goods by consumers equals the cost of resources used to produce them.

Question 13

If a firm’s total cost (TC) is $$TC = 100 + 5Q$$, what is the average total cost (ATC) when $$Q = 10$$?

Accepted Answer

$$ATC = 15$$

Question 14

Which of the following is NOT a characteristic of public goods?

Accepted Answer

Rivalry in consumption

Question 15

If the price elasticity of supply is $$0.5$$, what does this indicate about the supply curve?

Accepted Answer

Supply is inelastic.

Question 16

A firm faces the following cost structure: Total Fixed Cost (TFC) = $$100$$, Total Variable Cost (TVC) = $$200 at$$ $$Q = 10. $$What is the Average Total Cost (ATC)?

Accepted Answer

$$ATC = 30$$

Question 17

Which of the following best describes diminishing marginal utility?

Accepted Answer

As more of a good is consumed, the additional satisfaction from consuming each additional unit decreases.

Question 18

If a firm’s marginal cost (MC) is less than marginal revenue (MR), what should the firm do to maximize profit?

Accepted Answer

Increase output

Question 19

Which of the following is an example of an implicit cost?

Accepted Answer

Forgone salary from working elsewhere

Question 20

If the government wants to correct a negative externality, which policy would be most effective?

Accepted Answer

Imposing a tax equal to the external cost

Microeconomics Exam 3 Comprehensive Study Guide

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