Question 1

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

Accepted Answer

It is downward sloping from left to right.

Question 2

Suppose the price of coffee increases. What is the most likely effect on the demand for tea, assuming tea and coffee are substitutes?

Accepted Answer

The demand for tea will increase.

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 setting output where $$MC = MR$$ and $$P = MC$$

Question 4

What is the likely impact of a government-imposed price ceiling below the equilibrium price on the market for rental apartments?

Accepted Answer

It will create a shortage of apartments.

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

A firm’s additional revenue from selling one more unit of output is called:

Accepted Answer

Marginal revenue

Question 8

If a perfectly competitive firm is experiencing losses in the short run, what should it do?

Accepted Answer

Continue to produce if price covers average variable cost ($$P \geq AVC).$$

Question 9

Which of the following equations correctly represents profit maximization for any firm?

Accepted Answer

$$MR = MC$$

Question 10

Given the following cost curves: Average Total Cost ($$ATC$$), Average Variable Cost ($$AVC$$), and Marginal Cost ($$MC$$), at what point does the $$MC$$ curve intersect the $$ATC$$ and $$AVC$$ curves?

Accepted Answer

At their minimum points.

Question 11

Which of the following best describes economies of scale?

Accepted Answer

Long-run average total cost decreases as output increases.

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

How does the market demand curve differ from the supply curve of an individual firm in perfect competition?

Accepted Answer

The market demand curve is downward sloping, while the firm’s supply curve is upward sloping above $$AVC.$$

Question 15

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

Accepted Answer

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

Question 16

Which of the following is a barrier to entry in a monopoly market?

Accepted Answer

High fixed costs or control of a key resource

Question 17

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 18

Which of the following equations represents the profit ($$\pi) of a $$firm?

Accepted Answer

$$\pi = TR - TC$$

Question 19

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

Accepted Answer

New firms will enter, shifting the demand curve left until profits are zero.

Question 20

Which market structure is characterized by a single seller, high barriers to entry, and no close substitutes?

Accepted Answer

Monopoly

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