Q: If a firm in a perfectly competitive market is producing where $P < AVC$, what should the firm do in the short run?

Shut down production immediately.

Q: Which of the following is an example of price discrimination?

A monopolist charges different prices to different groups based on their willingness to pay.

Q: In the context of oligopoly, what is the main insight from the Prisoner’s Dilemma game?

Firms have an incentive to cheat on collusive agreements, leading to a non-cooperative outcome.

Q: Suppose a monopolist can perfectly price discriminate. Compared to a single-price monopolist, what happens to consumer surplus and deadweight loss?

Consumer surplus is eliminated and deadweight loss is eliminated.

Q: A firm’s short-run cost curves are $TC = 200 + 10Q + Q^2$. What is the average total cost (ATC) function?

$ATC = \dfrac{200}{Q} + 10 + Q$

Q: Which of the following best describes the concept of Nash Equilibrium in game theory?

A situation where no player can improve their payoff by unilaterally changing their strategy.

Q: In the long run, firms in a perfectly competitive market earn zero economic profit because:

Entry and exit of firms drive price to the level of minimum average total cost.

Question 1

Which of the following best describes the difference between accounting profit and economic profit?

Accepted Answer

Accounting profit is calculated as total revenue minus explicit costs, while economic profit is total revenue minus both explicit and implicit costs.

Question 2

Suppose 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 3

In the context of market structures, which of the following is a key characteristic of perfect competition?

Accepted Answer

Firms sell identical (homogeneous) products and are price takers.

Question 4

A monopolist faces the following demand curve: $P = 50 - 2Q$. Its marginal cost is constant at $MC = 10$. What is the profit-maximizing quantity?

Accepted Answer

$Q = 15$

Question 5

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

Accepted Answer

Due to economies of scale at low output levels and diseconomies of scale at high output levels.

Question 6

If a firm in a perfectly competitive market is producing where $P < AVC$, what should the firm do in the short run?

Accepted Answer

Shut down production immediately.

Question 7

Which of the following is an example of price discrimination?

Accepted Answer

A monopolist charges different prices to different groups based on their willingness to pay.

Question 8

In the context of oligopoly, what is the main insight from the Prisoner’s Dilemma game?

Accepted Answer

Firms have an incentive to cheat on collusive agreements, leading to a non-cooperative outcome.

Question 9

Suppose a monopolist can perfectly price discriminate. Compared to a single-price monopolist, what happens to consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is eliminated and deadweight loss is eliminated.

Question 10

A firm’s short-run cost curves are $TC = 200 + 10Q + Q^2$. What is the average total cost (ATC) function?

Accepted Answer

$ATC = \dfrac{200}{Q} + 10 + Q$

Question 11

Which of the following is NOT a feature of monopolistic competition?

Accepted Answer

Firms are price takers

Question 12

If a firm’s marginal cost (MC) is below its average total cost (ATC), what happens to ATC as output increases?

Accepted Answer

ATC decreases

Question 13

Which of the following best describes the concept of Nash Equilibrium in game theory?

Accepted Answer

A situation where no player can improve their payoff by unilaterally changing their strategy.

Question 14

In the long run, firms in a perfectly competitive market earn zero economic profit because:

Accepted Answer

Entry and exit of firms drive price to the level of minimum average total cost.

Question 15

Suppose the market demand is $Q = 100 - 2P$ and the market supply is $Q = 2P$. What is the equilibrium price?

Accepted Answer

$P = 25$

Question 16

Which of the following is most likely to result in a kinked demand curve?

Accepted Answer

Oligopoly

Question 17

If a monopolist’s marginal revenue (MR) is zero at a certain quantity, what does this imply about total revenue (TR) at that quantity?

Accepted Answer

TR is maximized

Question 18

Which of the following is a likely outcome of collusion among firms in an oligopoly?

Accepted Answer

Firms set prices and output to maximize joint profits, similar to a monopoly

Question 19

A firm’s total revenue (TR) is $TR = 20Q$. Its total cost (TC) is $TC = 5Q + 50$. What is the profit-maximizing output in perfect competition if the market price is $P = 20$?

Accepted Answer

Any quantity where $P = MC = 5$

Question 20

Which of the following best describes the deadweight loss (DWL) from monopoly?

Accepted Answer

The loss in total surplus due to the monopolist producing less than the socially optimal quantity.

ECO 304k Midterm 3 Study Guide: Market Structures, Costs, and Game Theory

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