Question 1

Which of the following best describes why competitive markets are considered efficient?

Accepted Answer

Because they ensure that the sum of consumer and producer surplus is maximized, with no deadweight loss.

Question 2

Suppose the government imposes a price ceiling on apartment rents below the equilibrium price. What is the most likely outcome in the rental market?

Accepted Answer

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

Question 3

A minimum wage is an example of which of the following market interventions?

Accepted Answer

A price floor

Question 4

Deadweight loss occurs in a market when:

Accepted Answer

Total surplus is not maximized due to market interventions or inefficiencies.

Question 5

According to the law of diminishing returns, as more units of a variable input are added to fixed inputs, what happens to marginal product?

Accepted Answer

Marginal product eventually decreases.

Question 6

If a firm's total cost function is $$TC = 100 + 5Q + Q^2$, what is the marginal cost (MC) function?

Accepted Answer

$$MC = 5 + 2Q$$

Question 7

Which of the following statements about short run and long run costs is correct?

Accepted Answer

In the long run, firms can adjust all inputs, leading to lower average costs at optimal scale.

Question 8

In perfect competition, a firm maximizes profit by producing the quantity where:

Accepted Answer

$$P = MR = MC$$

Question 9

A perfectly competitive firm will shut down in the short run if:

Accepted Answer

Price is less than average variable cost at all output levels.

Question 10

In the long run, the entry and exit of firms in a perfectly competitive market will result in:

Accepted Answer

Zero economic profit (normal profit) for all firms.

Question 11

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 12

Why is monopoly considered inefficient compared to perfect competition?

Accepted Answer

Because monopolies restrict output and charge a price above marginal cost, creating deadweight loss.

Question 13

Suppose a natural monopoly is regulated to set price equal to average cost ($$P = AC). $$What is the likely outcome?

Accepted Answer

The firm will break even, earning zero economic profit.

Question 14

If a government sets a price floor above the equilibrium price in the wheat market, what is the most likely result?

Accepted Answer

A surplus of wheat.

Question 15

A firm in perfect competition faces a market price of $$10. $$Its total cost function is $$TC = 20 + 4Q. $$What is the firm's profit-maximizing output?

Accepted Answer

The firm should produce as much as possible since marginal cost is constant and less than price.

Question 16

Which of the following best explains the concept of deadweight loss using a real-world example?

Accepted Answer

Rent control in a city leads to fewer apartments being available than people want, resulting in lost gains from trade.

Question 17

If a monopolist faces the demand curve $$P = 100 - 2Q$$ and has constant marginal cost $$MC = 20$$, what is the profit-maximizing quantity?

Accepted Answer

$$Q = 20$$

Question 18

Which of the following is true about the break-even point for a perfectly competitive firm?

Accepted Answer

It occurs where price equals average total cost.

Question 19

A city government is considering regulating a natural monopoly by setting price equal to marginal cost ($$P = MC). $$What is a likely problem with this policy?

Accepted Answer

The firm may incur losses because average cost exceeds marginal cost.

Question 20

If a firm’s average total cost (ATC) is minimized at $$Q = 100$$ units, and the market price equals the minimum ATC, what will happen in the long run in a perfectly competitive market?

Accepted Answer

Firms will earn zero economic profit, and the market will be in long-run equilibrium.

Microeconomics Study Notes: Market Efficiency, Government Actions, Costs, Perfect Competition, and Monopoly

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