Question 1

Which of the following best describes a public good?

Accepted Answer

A good that is non-excludable and not rival in consumption.

Question 2

Suppose a city provides free fireworks displays every July 4th. What economic problem is most likely to arise from this situation?

Accepted Answer

The free-rider problem.

Question 3

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

Accepted Answer

$$P \u003c AVC_{min}$$

Question 4

Which of the following is true about the relationship between marginal cost (MC) and average total cost (ATC)?

Accepted Answer

MC crosses ATC at the minimum point of ATC.

Question 5

If a firm’s total cost is $$TC = FC + VC$$, and fixed costs are $$FC = 100$$, what is the total cost when variable costs are $$VC = 200$$?

Accepted Answer

$$TC = 300$$

Question 6

Which of the following is an example of a common resource?

Accepted Answer

Fish in the ocean.

Question 7

In the long run, a competitive firm will exit the market if:

Accepted Answer

$$P \u003c ATC_{min}$$

Question 8

Which of the following best explains why the long-run average total cost (LRATC) curve is U-shaped?

Accepted Answer

Because of economies of scale at low output and diseconomies of scale at high output.

Question 9

A firm’s profit ($$\pi) $$can be calculated as:

Accepted Answer

$$\pi = (P - ATC) 	imes Q$$

Question 10

If the market price is above the minimum ATC, what will a competitive firm do in the short run?

Accepted Answer

Operate at a profit.

Question 11

Which policy is NOT a solution to the tragedy of the commons?

Accepted Answer

Providing subsidies for overuse.

Question 12

If marginal cost (MC) is less than average total cost (ATC), what happens to ATC as output increases?

Accepted Answer

ATC falls.

Question 13

Which of the following statements about the long-run equilibrium in a perfectly competitive market is correct?

Accepted Answer

$$P = ATC = MC$$

Question 14

A firm is currently producing where $$MC = P = ATC. $$What is the firm’s economic profit?

Accepted Answer

Zero

Question 15

Which of the following is true about fixed costs (FC)?

Accepted Answer

FC does not change as output changes.

Question 16

Suppose the government issues tradable pollution permits. This policy is intended to:

Accepted Answer

Assign property rights to pollution and reduce overuse of common resources.

Question 17

If a firm’s average variable cost (AVC) is $$10$$, average total cost (ATC) is $$15$$, and it produces $$20$$ units, what is the firm’s total fixed cost (FC)?

Accepted Answer

$$FC = 200$$

Question 18

Which of the following best explains why public goods are under-provided in a free market?

Accepted Answer

Because of the free-rider problem.

Question 19

If the market price is between $$AVC_{min}$$ and $$ATC_{min}$$, what should a competitive firm do in the short run?

Accepted Answer

Operate at a loss.

Question 20

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

Accepted Answer

Firms face barriers to entry and exit.

Study Notes: Types of Goods, Costs, and Perfect Competition

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