Question 1

Which of the following best describes the difference between a price taker and a price searcher?

Accepted Answer

A price taker faces a flat demand curve, while a price searcher faces a downward-sloping demand curve.

Question 2

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

Accepted Answer

$$MR = 100 - 4Q$$

Question 3

In the context of monopoly, what is the main reason a natural monopoly exists?

Accepted Answer

High fixed costs lead to ever-decreasing average costs, making it most efficient for one firm to serve the market.

Question 4

If a price searcher is maximizing profit, which condition must be satisfied?

Accepted Answer

$$MR = MC$$

Question 5

Why does deadweight loss (DWL) occur in a monopoly market structure?

Accepted Answer

Because the monopolist produces less than the socially efficient quantity, leaving unrealized gains from trade.

Question 6

Which of the following is NOT an example of price discrimination?

Accepted Answer

Charging trucks a higher toll than cars due to higher road wear.

Question 7

A monopolist faces the demand curve $$P = 60 - Q$$ and has zero marginal cost. At what quantity is total revenue maximized?

Accepted Answer

$$Q = 30$$

Question 8

Which of the following is a necessary condition for a firm to successfully practice third-degree (ordinary) price discrimination?

Accepted Answer

The firm must be able to prevent resale between market segments.

Question 9

If a firm uses two-part pricing, what is the optimal strategy for maximizing profit?

Accepted Answer

Set per-unit price equal to marginal cost and entry fee equal to consumer surplus.

Question 10

Which market structure is characterized by many firms selling differentiated products and relatively easy entry?

Accepted Answer

Monopolistic competition

Question 11

A firm in monopolistic competition is earning positive economic profit in the short run. What will happen in the long run?

Accepted Answer

New firms will enter, driving profit to zero.

Question 12

Which of the following best explains why a price searcher’s marginal revenue is less than the price?

Accepted Answer

To sell an additional unit, the firm must lower the price on all units sold.

Question 13

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

Accepted Answer

The firm charges each consumer their maximum willingness to pay for each unit.

Question 14

Suppose a monopolist can segment its market into two groups: students (elastic demand) and business travelers (inelastic demand). Which group will pay a higher price?

Accepted Answer

Business travelers

Question 15

If a firm’s profit is given by $$\pi = (P - AC) 	imes Q$$, what does it mean if $$P \u003c AC$$?

Accepted Answer

The firm is making a loss.

Question 16

Which of the following is a real-world example of two-part pricing?

Accepted Answer

A gym charges a membership fee plus a fee per class attended.

Question 17

Why might two-part pricing not be used widely in markets with heterogeneous consumers?

Accepted Answer

A uniform entry fee may deter low-demand consumers.

Question 18

Which of the following is a necessary condition for price discrimination to be profitable?

Accepted Answer

The firm must have market power.

Question 19

If a monopolist is regulated to set price equal to marginal cost, what is the likely outcome?

Accepted Answer

The firm may incur losses if average cost exceeds marginal cost.

Question 20

Which of the following best describes the effect of perfect price discrimination on consumer surplus?

Accepted Answer

Consumer surplus is reduced to zero.

Price Searching, Market Structures, and Price Discrimination in Microeconomics

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