Question 1

Suppose a firm in the short run has total fixed costs of $$100 and total variable costs of 200 $$when producing 50 units. What is the average total cost (ATC) per unit?

Accepted Answer

$$\6$

Question 2

A perfectly competitive firm faces a market price of $$\10$ per unit. Its marginal cost (MC) at 100 units is $$\$$10$$, and its average total cost (ATC) at 100 units is $$\8$. What is the firm's profit at this output level?

Accepted Answer

$$\200$

Question 3

Which of the following best describes the Law of Diminishing Returns?

Accepted Answer

As more of a variable input is added to a fixed input, marginal product eventually decreases.

Question 4

If the marginal product of labor (MPL) is greater than the average product of labor (APL), what happens to APL as more labor is added?

Accepted Answer

APL increases.

Question 5

A monopolist faces the following demand curve: $$P = 100 - 2Q. $$Its marginal cost is constant at $$\20$. What is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 6

Which of the following is NOT a source of monopoly power?

Accepted Answer

Perfect information

Question 7

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

Accepted Answer

They are driven to zero due to entry and exit of firms.

Question 8

A monopolistically competitive firm in the long run will:

Accepted Answer

Earn zero economic profit due to entry of new firms.

Question 9

Which of the following best explains why the marginal revenue (MR) curve for a monopolist lies below its demand curve?

Accepted Answer

To sell additional units, the monopolist must lower the price on all units sold.

Question 10

Suppose a hurricane hits Florida, and the state imposes a price ceiling on generators at the pre-hurricane price. What is the most likely outcome?

Accepted Answer

A shortage of generators, with allocation based on non-price factors.

Question 11

If the price elasticity of demand for a product is $$0.6 (in $$absolute value), a 10% increase in price will lead to:

Accepted Answer

A 6% decrease in quantity demanded.

Question 12

Which of the following is a characteristic of an oligopoly?

Accepted Answer

A few large firms dominate the market and interact strategically.

Question 13

In a game theory payoff matrix, a Nash Equilibrium occurs when:

Accepted Answer

No player can improve their payoff by unilaterally changing their strategy.

Question 14

A natural monopoly is most likely to occur in which of the following industries?

Accepted Answer

Electric utilities, due to high fixed costs and economies of scale.

Question 15

If a 10% increase in income leads to a 5% decrease in quantity demanded for a product, this product is:

Accepted Answer

An inferior good.

Question 16

Which of the following best describes the minimum efficient scale (MES) of production?

Accepted Answer

The lowest level of output at which long-run average cost is minimized.

Question 17

Suppose the supply curve for oranges shifts to the left due to a freeze in Florida. What happens to equilibrium price and quantity?

Accepted Answer

Price increases, quantity decreases.

Question 18

Which of the following is true about the demand curve faced by a perfectly competitive firm?

Accepted Answer

It is perfectly elastic at the market price.

Question 19

In a sequential game represented by a decision tree, what technique is used to determine the optimal strategies for all players?

Accepted Answer

Backward induction

Question 20

Which of the following best explains why average fixed cost (AFC) declines as output increases?

Accepted Answer

Fixed costs are spread over more units of output.

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