Question 1

In a perfectly competitive market, a firm faces a market price of $$10. Its average total cost (ATC) at the profit-maximizing output is 8$$, and it sells 100 units. What is the firm's economic profit?

Accepted Answer

$$\200$

Question 2

Which of the following best describes the demand curve faced by an individual firm in a perfectly competitive market?

Accepted Answer

Perfectly elastic (horizontal)

Question 3

Suppose a firm in a perfectly competitive market finds that its marginal cost (MC) is less than the market price (P). According to the profit maximization rule, what should the firm do?

Accepted Answer

Increase output

Question 4

A monopolistically competitive firm in the short run is producing where $$MR = MC$$ and $$P \u003e ATC. $$What is the firm's situation?

Accepted Answer

The firm is earning an economic profit

Question 5

In the long run, what happens to profits in both perfectly competitive and monopolistically competitive markets?

Accepted Answer

Firms earn zero economic profit

Question 6

If the market price falls below a firm's average variable cost (AVC) in the short run, what is the firm's best action?

Accepted Answer

Shut down production

Question 7

Which of the following is NOT a characteristic of an oligopoly?

Accepted Answer

Firms are price takers

Question 8

A firm in a monopolistically competitive market is producing at a quantity where $$P = ATC$$ but $$P \u003e MC. $$What does this indicate about the firm's efficiency?

Accepted Answer

The firm is not allocatively efficient

Question 9

Which of the following best explains why the marginal revenue (MR) curve lies below the demand curve for a monopolistically competitive firm?

Accepted Answer

The firm must lower its price to sell additional units

Question 10

In the context of game theory, what is a Nash equilibrium?

Accepted Answer

A situation where each firm chooses the best strategy given the other firm's strategy

Question 11

Suppose a perfectly competitive firm is producing at the point where $$P = MC = ATC. $$What is true about the firm's profit?

Accepted Answer

The firm is earning zero economic profit

Question 12

Which of the following is an example of a barrier to entry in an oligopolistic market?

Accepted Answer

Patents

Question 13

A firm in a perfectly competitive market is producing 200 units. The market price is $$\5$, average total cost (ATC) is $$\$$7$$, and average variable cost (AVC) is $$\4$. What should the firm do in the short run?

Accepted Answer

Continue producing, even though it is incurring a loss

Question 14

Which of the following is a method firms in monopolistic competition use to differentiate their products?

Accepted Answer

Branding and advertising

Question 15

In the Five Competitive Forces Model, when is supplier power considered low?

Accepted Answer

When there are many suppliers

Question 16

Which of the following best describes productive efficiency in perfect competition?

Accepted Answer

Production at the lowest average total cost (ATC)

Question 17

A firm in a perfectly competitive market is considering shutting down in the short run. Which condition must be true for shutdown to be the optimal decision?

Accepted Answer

$$P \u003c AVC$$

Question 18

In a sequential game, why must the first firm anticipate the reactions of other firms?

Accepted Answer

Because the outcome depends on how competitors respond to its actions

Question 19

Which of the following is a key reason why firms in monopolistic competition have some control over price?

Accepted Answer

Product differentiation

Question 20

Suppose two firms in an oligopoly are deciding whether to advertise. If both advertise, each earns $$\2$ million. If neither advertises, each earns $$\$$3$$ million. If one advertises and the other does not, the advertiser earns $$\4$ million and the other earns $$\$$1$$ million. What outcome does the prisoner's dilemma predict?

Accepted Answer

Both firms will advertise and earn $$\2$ million each

Market Structures: Perfect Competition, Monopolistic Competition, and Oligopoly

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