Question 1

Suppose a firm is deciding how much labor and capital to employ. If the marginal product of labor (MPL) is 20 units and the marginal product of capital (MPK) is 40 units, while the wage rate (w) is $$10 and the rental rate of capital (r) is 20$$, is the firm minimizing its cost of production?

Accepted Answer

Yes, because $$\frac{MPL}{w} = \frac{MPK}{r}$$, so the firm is allocating resources efficiently.

Question 2

In a perfectly competitive market, which condition must be met for a firm to maximize profit in the short run?

Accepted Answer

$$MC = MR$$

Question 3

A monopolist faces the following demand curve: $$P = 100 - Q. $$Its marginal cost is constant at $$MC = 20. $$What is the profit-maximizing output?

Accepted Answer

$$Q = 40$$

Question 4

If a firm’s total cost function is $$TC(Q) = 100 + 5Q + Q^2$, what is its marginal cost function?

Accepted Answer

$$MC(Q) = 5 + 2Q$$

Question 5

Which of the following best describes the law of diminishing marginal returns?

Accepted Answer

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

Question 6

A firm in a perfectly competitive market will shut down in the short run if:

Accepted Answer

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

Question 7

If a firm’s production function is $$Q = F(K, L)$$, what does the marginal rate of technical substitution (MRTS) represent?

Accepted Answer

The rate at which labor can be substituted for capital while keeping output constant.

Question 8

Which of the following is true about economies of scale?

Accepted Answer

Long-run average cost decreases as output increases.

Question 9

A firm’s cost-output elasticity is defined as the percent change in cost of production from a one-percent increase in output. Which formula represents this concept?

Accepted Answer

$$E_C = \frac{MC}{ATC}$$

Question 10

In the context of monopoly pricing, what is the relationship between marginal revenue (MR) and price (P)?

Accepted Answer

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

Question 11

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

Accepted Answer

Firms are price takers.

Question 12

A firm’s profit is maximized when:

Accepted Answer

Marginal cost equals marginal revenue ($$MC = MR)$$

Question 13

In monopolistic competition, which of the following is true in the long run?

Accepted Answer

Firms earn zero economic profit.

Question 14

Which of the following best describes the concept of consumer surplus?

Accepted Answer

The difference between what consumers are willing to pay and what they actually pay.

Question 15

If a firm faces a downward-sloping demand curve and can set prices, which market structure is it most likely operating in?

Accepted Answer

Monopoly

Question 16

In the context of oligopoly, what does the Nash Equilibrium represent?

Accepted Answer

A situation where no firm can improve its payoff by changing its strategy unilaterally.

Question 17

Which of the following is true about first-degree price discrimination?

Accepted Answer

The firm charges each consumer their maximum willingness to pay.

Question 18

If a firm’s average total cost (ATC) is $$15$$ and its marginal cost (MC) is $$10 at $$the current output, what will happen to ATC if the firm increases output?

Accepted Answer

ATC will decrease.

Question 19

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

Accepted Answer

$$\pi = TR - TC$$

Question 20

A firm’s expansion path shows:

Accepted Answer

The cost-minimizing combinations of inputs for each level of output.

Microeconomics: Production, Costs, and Market Structures – Study Notes

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