Question 1

In a perfectly competitive market, which condition must be met for a firm to maximize profit?

Accepted Answer

Marginal cost equals marginal revenue ($$MC = MR)$$

Question 2

A firm in perfect competition faces a market price of $$\10$. Its total cost function is TC = 50 + 2Q$. What is the shutdown price for this firm?

Accepted Answer

$$P = 2 ($$where $$P = AVC)$$

Question 3

Which of the following best describes allocative efficiency in a perfectly competitive market?

Accepted Answer

Resources are allocated such that $$P = MC$$

Question 4

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

Accepted Answer

$$Q = 20$$

Question 5

Which of the following is NOT a characteristic of oligopoly markets?

Accepted Answer

Firms are price takers

Question 6

In the Prisoner's Dilemma, what outcome is most likely if both players act rationally and independently?

Accepted Answer

Both players choose to confess, leading to a suboptimal outcome

Question 7

If a firm is producing where $$P \u003c AVC$$, what should it do in the short run?

Accepted Answer

Shut down production

Question 8

Which formula is used to calculate the Herfindahl-Hirschman Index (HHI) for market concentration?

Accepted Answer

$$HHI = \sum_{i=1}^{N} s_i^2$ where s_i$ is the market share percentage of firm i$

Question 9

A monopolist can price discriminate if:

Accepted Answer

It can prevent resale and identify different consumer groups

Question 10

Which of the following best describes productive efficiency?

Accepted Answer

Producing at the lowest possible cost ($$ATC is $$minimized)

Question 11

In a duopoly, if both firms choose to collude, what is the likely effect on market price and output compared to perfect competition?

Accepted Answer

Price will be higher and output lower than in perfect competition

Question 12

Which of the following is a reason for the existence of oligopolies?

Accepted Answer

High barriers to entry

Question 13

A firm faces the following cost structure: $$TC = 100 + 5Q + Q^2$. If the market price is P = 25$, what is the profit-maximizing output?

Accepted Answer

$$Q = 10$$

Question 14

Which of the following is true about the Nash Equilibrium in a game theory context?

Accepted Answer

No player can improve their payoff by changing their strategy unilaterally

Question 15

If a firm in perfect competition is earning zero economic profit, which of the following must be true?

Accepted Answer

$$P = ATC$$

Question 16

Which antitrust act is designed to prevent monopolistic practices and promote competition?

Accepted Answer

Sherman Act

Question 17

A monopolist's profit is maximized where:

Accepted Answer

Marginal revenue equals marginal cost ($$MR = MC)$$

Question 18

Which of the following is an example of price discrimination?

Accepted Answer

Movie theaters charging different prices for children and adults

Question 19

If the concentration ratio for the top four firms in a market is 80%, what does this indicate?

Accepted Answer

The market is highly concentrated and likely oligopolistic

Question 20

Which of the following best describes the difference between horizontal and vertical mergers?

Accepted Answer

Horizontal mergers occur between firms in the same industry; vertical mergers occur between firms at different stages of production

Microeconomics Exam 3 Study Guide: Market Structures, Oligopoly, and Market Power

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