Question 1

Suppose a firm in the short run has total fixed costs (FC) of $$100 and total variable costs (VC) of 200 $$when producing 10 units of output. What is the average total cost (ATC) at this output level?

Accepted Answer

$$ ATC = \frac{FC + VC}{Q} = \frac{100 + 200}{10} = 30 $$

Question 2

Which of the following best describes the concept of diminishing marginal product?

Accepted Answer

As more units of a variable input are added to fixed inputs, the additional output produced by each additional unit of input eventually decreases.

Question 3

A perfectly competitive firm faces a market price of $$20. Its marginal cost (MC) at 50 units of output is 20$$, and average variable cost (AVC) is $15. What should the firm do in the short run?

Accepted Answer

Continue producing 50 units because price equals marginal cost and covers average variable cost.

Question 4

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

Accepted Answer

Firms have significant control over market price.

Question 5

If a monopolist faces the following demand and cost conditions: $$ P = 100 - 2Q $$, $$ MC = 20 $$, what is the profit-maximizing quantity?

Accepted Answer

$$ MR = 100 - 4Q; \ MR = MC \Rightarrow 100 - 4Q = 20 \Rightarrow Q = 20 $$

Question 6

Which of the following best explains why monopolies can earn long-run economic profits?

Accepted Answer

Barriers to entry prevent other firms from entering the market.

Question 7

A firm’s long-run average total cost (LRATC) curve is downward sloping as output increases. This is most likely due to:

Accepted Answer

Economies of scale

Question 8

Which of the following is a necessary condition for a firm to successfully price discriminate?

Accepted Answer

The firm must be able to prevent resale between customers.

Question 9

Suppose a monopolistically competitive firm is earning positive economic profit in the short run. What will happen in the long run?

Accepted Answer

New firms will enter, shifting the firm's demand curve left until economic profit is zero.

Question 10

Which cost curve is directly affected by a per-unit tax imposed on a firm?

Accepted Answer

Marginal cost (MC)

Question 11

A firm’s marginal cost (MC) curve intersects its average total cost (ATC) curve at:

Accepted Answer

The minimum point of the ATC curve

Question 12

In the long run, a perfectly competitive firm will:

Accepted Answer

Earn zero economic profit because of free entry and exit.

Question 13

Which of the following best describes the deadweight loss associated with monopoly?

Accepted Answer

It is the loss of total surplus that occurs because the monopolist produces less than the socially optimal output.

Question 14

If a firm’s total cost (TC) is $$500 when producing 50 units and 520 $$when producing 51 units, what is the marginal cost (MC) of the 51st unit?

Accepted Answer

$$ MC = TC_{51} - TC_{50} = 520 - 500 = 20 $$

Question 15

Which market structure is most likely to engage in advertising to differentiate its product?

Accepted Answer

Monopolistic competition

Question 16

Suppose a firm’s average variable cost (AVC) is $$10, average total cost (ATC) is 15$$, and marginal cost (MC) is $$12 at the current output. If the market price is 8$$, what should the firm do in the short run?

Accepted Answer

Shut down, because price is less than AVC.

Question 17

Which of the following best describes the minimum efficient scale?

Accepted Answer

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

Question 18

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

Accepted Answer

Zero economic profit

Question 19

Which of the following is an example of opportunity cost?

Accepted Answer

The income you give up by attending college instead of working full-time.

Microeconomics Final Exam Study Guide: Technology, Market Structures, and Pricing

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