Question 1

Which of the following best describes a club good?

Accepted Answer

Non-rival and excludable

Question 2

Suppose a city provides fireworks displays for free on July 4th. Which characteristic of public goods explains why private markets tend to underprovide such displays?

Accepted Answer

Non-excludability leading to free riding

Question 3

A fishery in a lake is an example of a common resource. According to the 'tragedy of the commons,' what is the likely outcome if access is not regulated?

Accepted Answer

The resource will be overused and depleted due to rivalry and non-excludability.

Question 4

A firm has total fixed costs of $$200 and produces 50 units. What is its average fixed cost (AFC)?

$$AFC = \frac{TFC}{Q}$

Accepted Answer

$$AFC = \frac{200}{50} = 4$$

Question 5

Which of the following statements about the marginal product (MP) and average product (AP) of labor is correct?

Accepted Answer

AP reaches its maximum when MP equals AP.

Question 6

A perfectly competitive firm faces the following costs: $$ATC = 10$$, $$AVC = 7$$, and the market price is $$P = 8. $$What should the firm do in the short run?

Accepted Answer

Continue operating because price covers AVC, even though it is below ATC.

Question 7

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

Accepted Answer

Firms earn zero economic profit as entry and exit drive profit to zero.

Question 8

A monopolist faces the demand curve $$P = 100 - 2Q. $$What is the marginal revenue (MR) curve for this monopolist?

Accepted Answer

$$MR = 100 - 4Q$$

Question 9

Suppose a natural monopoly has $$ATC = 20$$ and $$MC = 10 at $$the efficient output level. If a regulator sets price equal to marginal cost ($$P = MC$$), what is a likely consequence?

Accepted Answer

The firm will incur losses and may require a subsidy.

Question 10

Which of the following is true about price discrimination by a monopolist?

Accepted Answer

It can increase the monopolist's profit if the firm can separate markets and prevent resale.

Question 11

A firm’s total revenue is $$TR = 500$$, explicit costs are $$EC = 300$$, and implicit costs are $$IC = 100. $$What is the firm’s economic profit?

$$	ext{Economic Profit} = TR - (EC + IC)$$

Accepted Answer

$$100$$

Question 12

If a monopolist sets output where $$MR = MC$$ and charges the price from the demand curve at that quantity, which of the following is true compared to perfect competition?

Accepted Answer

Monopoly produces a lower quantity at a higher price.

Question 13

Which of the following best explains why common resources tend to be overused?

Accepted Answer

Individuals do not account for the external cost imposed on others.

Question 14

A perfectly competitive firm’s marginal cost (MC) curve intersects its average total cost (ATC) curve at $$Q = 100$$ units and $$ATC = 20. If $$the market price is $$P = 25$$, what is the firm’s economic profit at $$Q = 100$$?

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

Accepted Answer

$$500$$

Question 15

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

Accepted Answer

Significant barriers to entry

Question 16

A monopolist’s profit is represented graphically as:

Accepted Answer

The rectangle with height $$(P^* - ATC^*)$$ and width $$Q^*.$$

Question 17

If a monopolist’s average variable cost (AVC) is $$15$$ and the price is $$12$$, what should the monopolist do in the short run?

Accepted Answer

Shut down because price is below AVC.

Question 18

Which of the following best describes the break-even point for a perfectly competitive firm?

Accepted Answer

$$P = ATC$$

Question 19

A two-part tariff is often used by natural monopolies. What is the main advantage of this pricing strategy?

Accepted Answer

It helps the firm cover fixed costs while keeping the per-unit price closer to marginal cost.

Question 20

Which of the following is true about the long-run average cost (LRAC) curve?

Accepted Answer

It reflects economies of scale at low output and diseconomies of scale at high output.

Microeconomics Study Guide: Public Goods, Production & Cost, Perfect Competition, and Monopoly

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