Question 1

A perfectly competitive firm will continue to produce in the short run even if it is making a loss, as long as:

Accepted Answer

Price is greater than average variable cost ($$P \u003e AVC)$$

Question 2

Suppose a firm faces the following costs at its current output: $$ATC = 80$$, $$AVC = 70$$, $$MC = 75$$, and the market price is $$P = 78. $$What should the firm do to maximize profit?

Accepted Answer

Increase output because $$P \u003e MC$$

Question 3

In the long run, positive economic profits in a perfectly competitive industry will:

Accepted Answer

Attract new firms, increasing supply and lowering price

Question 4

If marginal revenue is less than marginal cost ($$MR \u003c MC) at $$the current output, a profit-maximizing firm should:

Accepted Answer

Decrease output

Question 5

A monopolist faces the demand curve $$Q = 500 - P$$ and has a constant marginal cost of $$MC = 150. $$What is the profit-maximizing price?

Accepted Answer

$$P = 325$$

Question 6

Which of the following best describes the effect of persuasive advertising in a monopolistically competitive market?

Accepted Answer

It makes demand less elastic, increasing the markup and possibly profits

Question 7

In an oligopoly, the Nash equilibrium is best described as:

Accepted Answer

A situation where each firm chooses its best strategy given the strategies of others

Question 8

Suppose the price elasticity of demand for a product is $$-0.5. If $$the firm raises its price by 10%, what happens to total revenue?

Accepted Answer

Total revenue increases

Question 9

A firm in a perfectly competitive market is currently producing where $$P = MC = 25$$ and $$ATC = 30. $$What is the firm's economic profit?

Accepted Answer

Negative

Question 10

If a monopolist is producing where marginal revenue is zero, what does this imply about the elasticity of demand?

Accepted Answer

Demand is unit elastic

Question 11

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

Accepted Answer

Products are differentiated

Question 12

Suppose a firm’s total cost function is $$TC = 100 + 5Q + Q^2$. What is the marginal cost function?

Accepted Answer

$$MC = 5 + 2Q$$

Question 13

In the short run, if a firm’s price is below average variable cost, the firm should:

Accepted Answer

Shut down immediately

Question 14

Which of the following best explains why the long-run supply curve in a perfectly competitive industry is more elastic than the short-run supply curve?

Accepted Answer

Firms can enter or exit the industry in the long run

Question 15

A monopolist faces the demand curve $$P = 100 - 2Q$$ and has marginal cost $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 16

If a firm’s average total cost is minimized at $$Q = 100$$ units, but the firm is producing $$Q = 80$$ units, what should the firm do to minimize average total cost?

Accepted Answer

Increase output

Question 17

Which of the following is a likely result of a binding price ceiling in a competitive market?

Accepted Answer

A shortage of the good

Question 18

Suppose the government imposes a per-unit tax on a monopolist. What is the likely effect on the monopolist’s price and output?

Accepted Answer

Price increases, output decreases

Question 19

If a firm’s marginal cost is constant at $$MC = 10$$ and the market price is $$P = 15$$, what is the firm’s profit-maximizing rule in perfect competition?

Accepted Answer

Produce where $$P = MC$$, so increase output until $$MC = 15$$

Question 20

Which of the following best describes the shutdown point for a perfectly competitive firm?

Accepted Answer

The point where $$P = AVC$$

Microeconomics: Cost Structures, Market Structures, and Competitive Strategies – Study Notes

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