Question 1

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

Accepted Answer

There are barriers to entry and exit in the market.

Question 2

A firm in a perfectly competitive market will maximize profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 3

If the market price falls below a firm's average variable cost, what should the firm do in the short run?

Accepted Answer

Shut down production immediately.

Question 4

Which of the following best describes the law of diminishing returns?

Accepted Answer

After a certain point, each additional worker contributes less output than the previous worker.

Question 5

A firm’s total cost is $$\500$ when producing 100 units. If the variable cost is $$\$$300$$, what is the fixed cost?

Accepted Answer

$$\200$

Question 6

Which formula correctly calculates average total cost (ATC)?

Accepted Answer

$$ATC = \frac{Total\ cost}{Total\ output}$$

Question 7

Suppose a bakery can sell as many loaves of bread as it wants at $$\2$ per loaf. If the marginal cost of producing the 101st loaf is $$\$$2$$, what should the bakery do to maximize profit?

Accepted Answer

Produce the 101st loaf, since $$MC = MR at $$this output.

Question 8

Which of the following is an example of an implicit cost?

Accepted Answer

The salary the owner could have earned working elsewhere.

Question 9

If a firm’s total revenue is $$\1$$,000$$, explicit costs are $$\$$700$$, and implicit costs are $$\200$, what is the firm’s economic profit?

Accepted Answer

$$\100$

Question 10

Which of the following statements about producer surplus is correct?

Accepted Answer

It is the difference between the market price and the supply curve.

Question 11

A firm faces the following costs: fixed cost $$= \100$, variable cost $$= \$$200$$, and output $$= 50$$ units. What is the average total cost (ATC)?

Accepted Answer

$$ATC = \frac{100 + 200}{50} = 6$$

Question 12

If the price elasticity of demand for a product is $$-2$$, what does this imply?

Accepted Answer

A 1% increase in price leads to a 2% decrease in quantity demanded.

Question 13

Which of the following best describes the shutdown rule in the short run?

Accepted Answer

If $$Price \u003c Average\ Variable\ Cost$$, the firm should shut down.

Question 14

A firm’s marginal cost of producing the 10th unit is $$\5$, and the market price is $$\$$7. $$What should the firm do?

Accepted Answer

Increase output, since $$MR \u003e MC.$$

Question 15

Which of the following is true about economic profit?

Accepted Answer

It includes both explicit and implicit costs.

Question 16

If a firm’s total revenue is $$\2$$,000$$, total explicit costs are $$\$$1,200$$, and total implicit costs are $$\500$, what is the accounting profit?

Accepted Answer

$$\800$

Question 17

Which of the following would increase the elasticity of supply for a product?

Accepted Answer

The more easily the firm can hire workers.

Question 18

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

Accepted Answer

The goods are substitutes.

Question 19

A firm’s total cost increases from $$\400$ to $$\$$450$$ when output increases from 20 to 25 units. What is the marginal cost of the 21st to 25th units?

Accepted Answer

$$MC = \frac{450 - 400}{25 - 20} = 10$$

Question 20

Which of the following best describes specialization in production?

Accepted Answer

Workers become more efficient when they specialize in production and work together to produce goods.

Perfect Competition and Cost Structures in Microeconomics

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