Question 1

Suppose the market for wheat is perfectly competitive. If the market price is $$5 per bushel, and a farmer's marginal cost of producing the 100th bushel is 5$$, what should the farmer do to maximize profit?

Accepted Answer

Maintain current production because marginal cost equals price.

Question 2

Which of the following best describes the shape of the long-run average cost (LRAC) curve when a firm experiences economies of scale?

Accepted Answer

The LRAC curve is downward sloping.

Question 3

A monopolist faces the following demand curve: $$Q = 100 - 2P. If $$the monopolist's marginal cost is constant at $$MC = 20$$, what is the profit-maximizing price?

Accepted Answer

$$P = 60$$

Question 4

Which of the following is NOT a characteristic of monopolistic competition?

Accepted Answer

Barriers to entry

Question 5

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

Accepted Answer

Shut down production immediately.

Question 6

Which of the following best explains why oligopolies are interdependent in their pricing decisions?

Accepted Answer

Each firm's actions directly affect the profits of other firms.

Question 7

Suppose a firm’s total cost function is $$TC = 100 + 5Q + Q^2$. What is the marginal cost when Q = 10$?

Accepted Answer

$$MC = 25$$

Question 8

Which of the following is an example of a natural monopoly?

Accepted Answer

A local water utility company

Question 9

If a monopolistically competitive firm is earning economic profits in the short run, what will likely happen in the long run?

Accepted Answer

New firms will enter, driving profits to zero.

Question 10

Which of the following best describes the kinked demand curve theory in oligopoly?

Accepted Answer

Firms believe rivals will match price decreases but not price increases.

Question 11

A firm’s marginal product of labor (MPL) is 10 units, and the price of output is $2 per unit. What is the value of the marginal product of labor (VMPL)?

Accepted Answer

$$VMPL = 20$$

Question 12

Which of the following government policies is designed to reduce monopoly power?

Accepted Answer

Enforcing antitrust laws

Question 13

If a firm’s short-run average total cost (ATC) is minimized at $$Q = 50$$ units, and the long-run average cost (LRAC) is minimized at $$Q = 100$$ units, what does this indicate?

Accepted Answer

The firm experiences economies of scale up to $$Q = 100.$$

Question 14

Which of the following is a necessary condition for price discrimination by a monopolist?

Accepted Answer

The firm must be able to prevent resale between customers.

Question 15

Suppose two firms in an oligopoly are deciding whether to advertise. If both advertise, each earns $$10 million. If neither advertises, each earns 15 $$million. If one advertises and the other does not, the advertiser earns $$20 million and the other earns 5 $$million. What is the Nash equilibrium?

Accepted Answer

Both firms advertise.

Question 16

Which of the following best describes the shutdown rule for a perfectly competitive firm in the short run?

Accepted Answer

Shut down if $$P \u003c AVC.$$

Question 17

If a monopolist can perfectly price discriminate, what is the consumer surplus?

Accepted Answer

Consumer surplus is zero.

Question 18

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

Accepted Answer

It is perfectly elastic.

Question 19

Which of the following is a result of product differentiation in monopolistic competition?

Accepted Answer

Firms face a downward-sloping demand curve.

Question 20

Suppose the government imposes a price ceiling below the equilibrium price in a perfectly competitive market. What is the likely result?

Accepted Answer

A shortage will occur.

Microeconomics Final Exam Study Guide: Key Topics and Concepts

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