Question 1

Which of the following best describes the typical shape of a market demand curve for a normal good, and why?

Accepted Answer

It is downward sloping because as price decreases, quantity demanded increases.

Question 2

Suppose the price of coffee increases. What is the most likely effect on the demand for tea, assuming tea is a substitute for coffee?

Accepted Answer

The demand for tea will increase, shifting the demand curve for tea to the right.

Question 3

In a perfectly competitive market, how does a firm decide the quantity of output to produce in order to maximize profit?

Accepted Answer

By producing where marginal cost equals marginal revenue.

Question 4

A government imposes a price ceiling below the equilibrium price on rental apartments. What is the most likely outcome in the market?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 5

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Products are differentiated.

Question 6

In perfect competition, what is the relationship between price ($$P) $$and marginal revenue ($$MR$$)?

Accepted Answer

$$P = MR$$

Question 7

If a firm’s total revenue increases by $$100$$ when it sells one more unit of output, what is the marginal revenue ($$MR) of $$that unit?

Accepted Answer

$$MR = 100$$

Question 8

A perfectly competitive firm is making a loss in the short run. What should the firm do if price ($$P) is $$greater than average variable cost ($$AVC) $$but less than average total cost ($$ATC$$)?

Accepted Answer

Continue to produce in the short run.

Question 9

Which equation correctly represents profit ($$\pi) $$for a firm?

Accepted Answer

$$\pi = TR - TC$$

Question 10

At the output level where marginal cost ($$MC) $$intersects average total cost ($$ATC$$), what is true about $$ATC$$?

Accepted Answer

$$ATC is at $$its minimum.

Question 11

Which of the following best describes economies of scale?

Accepted Answer

As output increases, long-run average total cost decreases.

Question 12

A firm should shut down in the short run if:

Accepted Answer

Price is less than average variable cost ($$P \u003c AVC).$$

Question 13

In the long run, what happens to economic profit in a perfectly competitive market?

Accepted Answer

Firms earn zero economic profit.

Question 14

Which of the following best explains the difference between market demand and firm supply in perfect competition?

Accepted Answer

Market demand is downward sloping, while a firm’s supply curve is its marginal cost curve above average variable cost.

Question 15

In a monopolistically competitive market, what happens to profits in the long run?

Accepted Answer

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

Question 16

Which of the following is NOT a barrier to entry in a market?

Accepted Answer

Perfect information.

Question 17

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 18

Which of the following market structures is characterized by a single seller, high barriers to entry, and no close substitutes?

Accepted Answer

Monopoly.

Question 19

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

Accepted Answer

New firms will enter, shifting the demand curve for the firm to the left until profit is zero.

Question 20

Which of the following is the profit-maximizing condition for any firm?

Accepted Answer

$$MR = MC$$

Microeconomics Final Exam Study Guide: Step-by-Step Guidance

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