Question 1

A monopolist faces the following demand curve: $$P = 100 - 2Q$$ and has constant marginal cost $$MC = 20. $$What is the profit-maximizing output and price in the short run?

Accepted Answer

Output: $$Q = 20$$, Price: $$P = 60$$

Question 2

Which of the following best describes the Lerner Index for monopoly power, and what does a higher value indicate?

Accepted Answer

The Lerner Index is $$L = \frac{P - MC}{P}$$; a higher value means more market power.

Question 3

Why does a monopoly not have a supply curve?

Accepted Answer

Because the monopolist's output depends on both demand and marginal cost, not just price.

Question 4

In the long run, how does the price and output of a monopolist compare to that of a perfectly competitive firm?

Accepted Answer

Monopoly produces less output at a higher price.

Question 5

Which of the following is a reason why the social cost of monopoly might be higher than the deadweight loss shown in a standard diagram?

Accepted Answer

Because monopolies may engage in rent-seeking behavior, using resources to maintain their position.

Question 6

Which of the following best describes a market with monopolistic competition?

Accepted Answer

Many firms, differentiated products, free entry and exit.

Question 7

In the long run, a monopolistically competitive firm will:

Accepted Answer

Earn zero economic profit due to free entry and exit.

Question 8

Which of the following is a key difference between oligopoly and monopolistic competition?

Accepted Answer

Oligopoly has strategic interdependence among firms, while monopolistic competition does not.

Question 9

In a duopoly, if both firms have a dominant strategy to set a high price, but each has an incentive to undercut, what is the likely Nash Equilibrium?

Accepted Answer

Both firms set a low price.

Question 10

Which of the following best defines a credible threat in the context of oligopoly?

Accepted Answer

A threat that is in the best interest of the firm to carry out if challenged.

Question 11

Suppose a consumer has the utility function $$U(x, y) = x \cdot y. If $$the price of $$x is$$ $$2$$, the price of $$y is$$ $$4$$, and income is $$40$$, what is the consumer's optimal bundle?

Accepted Answer

$$x = 5, y = 5$$

Question 12

If a consumer's indifference curves are straight lines, what does this imply about the goods?

Accepted Answer

The goods are perfect substitutes.

Question 13

Given a budget constraint $$2x + 4y = 40$$, what is the slope of the budget line if $$x is on $$the horizontal axis and $$y on $$the vertical axis?

Accepted Answer

$$-0.5$$

Question 14

If the price of good $$x$$ increases, holding income and the price of $$y$$ constant, what happens to the consumer's budget constraint?

Accepted Answer

It rotates inward, becoming steeper.

Question 15

If a consumer receives 'income in kind' in the form of free units of good $$x$$, how does this affect the budget constraint?

Accepted Answer

The budget line pivots at the $$y-$$intercept, creating a kink.

Question 16

Suppose a consumer's utility function is $$U(x, y) = x + y. If $$the price of $$x is$$ $$1$$, the price of $$y is$$ $$2$$, and income is $$10$$, what is the optimal consumption bundle?

Accepted Answer

$$x = 10, y = 0$$

Question 17

If a consumer's indifference curves are L-shaped, what does this imply about the goods?

Accepted Answer

The goods are perfect complements.

Question 18

When analyzing the allocation of time between labor and leisure, what does the slope of the budget constraint represent?

Accepted Answer

The wage rate.

Question 19

If nonmarket income increases, how does this affect the individual's budget constraint in the labor-leisure model?

Accepted Answer

It shifts the budget constraint outward, parallel to the original.

Question 20

If a consumer's income increases, what happens to their budget constraint and potential utility?

Accepted Answer

The budget constraint shifts outward and the consumer can reach a higher indifference curve.

Microeconomic Theory: Monopoly, Monopolistic Competition, Oligopoly, and Consumer Behavior

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