Question 1

Suppose a city government imposes a binding price ceiling on apartment rents. Which of the following is the most likely outcome in the short run?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 2

A firm in a perfectly competitive market faces the following cost structure: $$ATC = \10$, $$AVC = \$$7$$, and the market price is $$P = \8$. What should the firm do in the short run?

Accepted Answer

Continue operating, since price covers average variable cost.

Question 3

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative forgone when a choice is made.

Question 4

If the price elasticity of demand for a product is $$|PED| = 2.5$$, which of the following statements is true?

Accepted Answer

Demand is elastic, and total revenue will fall if price increases.

Question 5

A negative externality exists in the market for gasoline. Which policy would most efficiently correct the market outcome?

Accepted Answer

A Pigouvian tax equal to the external cost per unit.

Question 6

Which of the following is a characteristic of a natural monopoly?

Accepted Answer

One firm can supply the entire market at a lower cost than multiple firms due to economies of scale.

Question 7

Suppose the government imposes a per-unit tax on sellers in a market. If demand is more inelastic than supply, who bears the greater burden of the tax?

Accepted Answer

Buyers bear the greater burden because their demand is less responsive to price changes.

Question 8

Which of the following best describes the Nash equilibrium in the classic Prisoner's Dilemma game?

Accepted Answer

Both players defect, as neither can improve their outcome by changing strategy unilaterally.

Question 9

A monopolistically competitive firm in long-run equilibrium will:

Accepted Answer

Produce where price equals average total cost, earning zero economic profit.

Question 10

If a firm’s marginal product of labor is falling as more workers are hired, which law is being illustrated?

Accepted Answer

Law of diminishing marginal product.

Question 11

Suppose a market is initially in equilibrium. If the government introduces a binding price floor, what will happen?

Accepted Answer

A surplus will occur, as quantity supplied exceeds quantity demanded.

Question 12

Which of the following is true about public goods?

Accepted Answer

They are non-rival and non-excludable.

Question 13

A firm’s total cost is given by $$TC = 100 + 5Q + Q^2$. What is the marginal cost (MC) function?

Accepted Answer

$$MC = 5 + 2Q$$

Question 14

If the cross-price elasticity of demand between two goods is positive, what does this imply?

Accepted Answer

The goods are substitutes.

Question 15

Which of the following best explains why common resources tend to be overused?

Accepted Answer

Because individuals do not fully account for the external cost imposed on others.

Question 16

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 17

Which of the following is true about the relationship between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

MC intersects ATC at ATC's minimum point.

Question 18

In the context of game theory, what is a dominant strategy?

Accepted Answer

A strategy that yields a higher payoff for a player, regardless of what the other players do.

Question 19

Which of the following is a key difference between perfect competition and monopoly?

Accepted Answer

In perfect competition, price equals marginal cost; in monopoly, price exceeds marginal cost.

Question 20

Suppose a firm’s total revenue is $$TR = 50Q$$, explicit costs are $$200$$, and implicit costs are $$100. $$What is the firm’s economic profit if it produces $$10$$ units?

Accepted Answer

$$\200$

Microeconomics Final Exam Review: Key Concepts and Relationships

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