Q: A perfectly competitive firm faces a market price of $$20. Its marginal cost (MC) at 50 units is 20$$, and average total cost (ATC) at 50 units is $18. What is the firm's profit at this output?

$$ Profit = (P - ATC) \times Q = (20 - 18) \times 50 = 100 $$

Question 1

A firm in the short run has total fixed costs (FC) of $$100 and total variable costs (VC) of 200 $$when producing 10 units. What is the average total cost (ATC) at this output level?

Accepted Answer

$$ ATC = \frac{FC + VC}{Q} = \frac{100 + 200}{10} = 30 $$

Question 2

Which of the following best describes the Law of Diminishing Returns?

Accepted Answer

As more units of a variable input are added to fixed inputs, the additional output from each new unit will eventually decrease.

Question 3

A perfectly competitive firm faces a market price of $$20. Its marginal cost (MC) at 50 units is 20$$, and average total cost (ATC) at 50 units is $18. What is the firm's profit at this output?

Accepted Answer

$$ Profit = (P - ATC) 	imes Q = (20 - 18) 	imes 50 = 100 $$

Question 4

Which of the following is NOT an assumption of perfect competition?

Accepted Answer

Firms can influence the market price.

Question 5

If a monopolist can perfectly price discriminate, what is the effect on consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is zero and deadweight loss is eliminated.

Question 6

Which formula correctly calculates the Herfindahl-Hirschman Index (HHI) for a market with four firms with market shares of 40%, 30%, 20%, and 10%?

Accepted Answer

$$ HHI = 40^2$ + 30^2$ + 20^2$ + 10^2$ = 1600 + 900 + 400 + 100 = 3000 $$

Question 7

Which of the following best explains why natural monopolies exist?

Accepted Answer

Economies of scale allow a single firm to supply the entire market at a lower cost than multiple firms.

Question 8

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

Accepted Answer

A situation where no player can improve their payoff by unilaterally changing their strategy.

Question 9

A firm’s marginal product (MP) of labor increases initially as more workers are hired, but eventually decreases. This is due to:

Accepted Answer

The Law of Diminishing Returns.

Question 10

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

Accepted Answer

The foregone salary an entrepreneur could have earned elsewhere.

Question 11

If a firm in monopolistic competition is earning economic profit in the short run, what will happen in the long run?

Accepted Answer

New firms will enter, shifting the demand curve left until economic profit is zero.

Question 12

Which of the following best describes allocative efficiency in a perfectly competitive market?

Accepted Answer

$$ P = MC $$

Question 13

A firm’s short-run average total cost (ATC) curve is U-shaped because:

Accepted Answer

Initially, increasing returns to the variable input lower ATC, but eventually diminishing returns raise ATC.

Question 14

Which of the following is a reason for government regulation of natural monopolies?

Accepted Answer

To prevent the monopolist from charging excessively high prices due to lack of competition.

Question 15

Suppose a firm’s marginal cost (MC) is below its average total cost (ATC). What happens to ATC as output increases?

Accepted Answer

ATC decreases.

Question 16

Which of the following best describes a horizontal merger?

Accepted Answer

A merger between firms in the same industry producing similar products.

Question 17

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

Accepted Answer

$$ P \u003c AVC $$

Question 18

Which U.S. law is primarily concerned with prohibiting monopolistic practices and promoting competition?

Accepted Answer

Sherman Act

Question 19

Which of the following is a characteristic of an oligopoly?

Accepted Answer

Firms are interdependent and must consider rivals’ actions when making decisions.

Question 20

If a firm’s total revenue (TR) is $$500, explicit costs are 300$$, and implicit costs are $250, what is the economic profit?

Accepted Answer

$$ Economic\ Profit = TR - (Explicit\ Costs + Implicit\ Costs) = 500 - (300 + 250) = -50 $$

Microeconomics: Market Structures, Costs, and Efficiency – Exam 3 Study Guide

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