Question 1

A firm in perfect competition maximizes profit by producing the quantity at which marginal cost equals marginal revenue. If the market price is $$10 and the firm's marginal cost curve is MC = 2Q$, what is the profit-maximizing output?

Accepted Answer

$$Q = 5$$

Question 2

Which of the following best describes a public good?

Accepted Answer

It is nonrival and nonexcludable.

Question 3

Suppose a firm faces the following total cost function: $$TC = 100 + 5Q + Q^2$. What is the marginal cost when Q = 3$?

Accepted Answer

$$MC = 17$$

Question 4

A negative externality in production results in which of the following outcomes?

Accepted Answer

The market produces more than the efficient quantity.

Question 5

If a monopolist faces a downward-sloping market demand curve and sets output where marginal revenue equals marginal cost, what happens to price relative to marginal cost?

Accepted Answer

Price is greater than marginal cost.

Question 6

Which of the following is a characteristic of monopolistic competition?

Accepted Answer

Many firms selling differentiated products.

Question 7

A firm’s economic profit is zero when:

Accepted Answer

Total revenue equals total cost, including opportunity costs.

Question 8

In the short run, if a firm’s average variable cost is $$AVC = 4 + Q$$ and the market price is $$P = 10$$, what is the lowest output at which the firm will produce?

Accepted Answer

$$Q = 2$$

Question 9

Which of the following is most likely to cause the tragedy of the commons?

Accepted Answer

A common resource that is rival and nonexcludable.

Question 10

If the marginal product of labor is decreasing as more workers are hired, this is an example of:

Accepted Answer

The law of diminishing returns.

Question 11

A firm in monopolistic competition increases advertising expenditures. What is a likely outcome?

Accepted Answer

Average total cost increases, but demand might not increase.

Question 12

Which of the following best describes the price and output decision for a single-price monopoly compared to perfect competition?

Accepted Answer

The monopoly sets a higher price and produces a lower quantity.

Question 13

Suppose the value of marginal product of labor is $$VMP_L = 20 - 2L. If $$the wage rate is $$w = 12$$, how many units of labor will a profit-maximizing firm hire?

Accepted Answer

$$L = 4$$

Question 14

Which of the following is an example of a positive externality?

Accepted Answer

Knowledge spillovers from education.

Question 15

In an oligopoly, firms are most likely to:

Accepted Answer

Consider the actions and reactions of rival firms when making decisions.

Question 16

If the price of a nonrenewable natural resource is expected to rise at the interest rate, what does this imply about the resource market?

Accepted Answer

The market is efficiently allocating the resource over time.

Question 17

Which of the following is NOT a barrier to entry in a monopoly market?

Accepted Answer

Product differentiation in a competitive market.

Question 18

A repeated game in oligopoly is likely to result in:

Accepted Answer

A cooperative equilibrium if firms value future profits highly.

Question 19

Which of the following is true about the long-run average cost curve?

Accepted Answer

It shows the lowest attainable average total cost for each output when all inputs are variable.

Question 20

If a firm’s total revenue is $$TR = 50Q$$ and its total cost is $$TC = 10 + 30Q$$, what is the firm’s profit when $$Q = 4$$?

Accepted Answer

$$80$$

Microeconomics Study Notes: Production, Market Structures, Externalities, and Factor Markets

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