$$\text{Total Profit} = Q \times (P - ATC)$$

Question 1

Which of the following best describes consumer surplus in a market?

Accepted Answer

The difference between what a consumer is willing to pay and what they actually pay.

Question 2

Suppose the government imposes a price ceiling below the equilibrium price. What is the most likely outcome in the market?

Accepted Answer

A shortage of goods as quantity demanded exceeds quantity supplied.

Question 3

If a perfectly competitive firm faces a market price of $$10, and its marginal cost at the profit-maximizing output is 10$$, what should the firm do?

Accepted Answer

Maintain current output, as profit is maximized where $$P = MC.$$

Question 4

Which equation correctly represents total profit for a firm?

Accepted Answer

$$	ext{Total Profit} = Q 	imes (P - ATC)$$

Question 5

A monopolistically competitive firm faces a downward-sloping demand curve. What does this imply about its pricing power?

Accepted Answer

The firm can set its own price above marginal cost.

Question 6

In the short run, a perfectly competitive firm should shut down if:

Accepted Answer

Price is less than average variable cost.

Question 7

Which of the following is NOT a reason for the existence of monopolies?

Accepted Answer

Perfect competition.

Question 8

If a firm in a perfectly competitive market is making economic profits, what will happen in the long run?

Accepted Answer

New firms will enter, driving profits to zero.

Question 9

Which formula represents marginal revenue for a monopolist?

Accepted Answer

$$MR = \frac{\Delta TR}{\Delta Q}$$

Question 10

In an oligopoly, what is the Nash Equilibrium?

Accepted Answer

A situation where each firm chooses the best action given the actions of its competitors.

Question 11

Which of the following best describes productive efficiency?

Accepted Answer

Producing at the lowest average cost.

Question 12

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 13

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

Firms sell identical products.

Question 14

If a monopolist faces the following demand and cost functions: $$P = 100 - 2Q$$, $$TC = 20Q$$, what is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 15

Which of the following is true about monopolistically competitive firms in the long run?

Accepted Answer

They earn zero economic profit due to entry of new firms.

Question 16

Which formula correctly represents average variable cost?

Accepted Answer

$$AVC = \frac{VC}{Q}$$

Question 17

In the context of oligopoly, what is a punishment device?

Accepted Answer

A mechanism that allows firms to reach better outcomes in repeated games.

Question 18

Which of the following is NOT a feature of monopolistic competition?

Accepted Answer

Firms are price takers.

Question 19

If a firm’s total cost is $$TC = 100 + 5Q$$, and it produces 10 units, what is its average total cost?

Accepted Answer

$$ATC = 15$$

Question 20

Which of the following best describes deadweight loss from monopoly?

Accepted Answer

The loss of total surplus due to price being set above marginal cost.

Microeconomics Final Exam Study Guide: Market Structures, Efficiency, and Government Policy

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