Q: Suppose a firm’s total cost function is given by $TC = 100 + 5Q + 2Q^2$. What is the marginal cost (MC) when $Q = 10$?

$MC = 5 + 4Q = 5 + 4 \times 10 = 45$

Question 1

Suppose a firm’s total cost function is given by $TC = 100 + 5Q + 2Q^2$. What is the marginal cost (MC) when $Q = 10$?

Accepted Answer

$MC = 5 + 4Q = 5 + 4 	imes 10 = 45$

Question 2

A competitive firm faces a market price of $P = 20$. Its marginal cost is given by $MC = 4Q$. What is the firm’s profit-maximizing output?

Accepted Answer

$Q = 5$

Question 3

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

Accepted Answer

As more units of a variable input are added to a fixed input, the marginal product of the variable input eventually decreases.

Question 4

If a monopoly faces a linear demand curve $P = 100 - 2Q$, what is the marginal revenue (MR) function?

Accepted Answer

$MR = 100 - 4Q$

Question 5

A firm’s average total cost (ATC) is minimized when:

Accepted Answer

Marginal cost (MC) equals average total cost (ATC).

Question 6

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

Accepted Answer

Firms can influence the market price.

Question 7

If the market price is below a firm’s average variable cost (AVC), the firm should:

Accepted Answer

Shut down production in the short run.

Question 8

Suppose a monopolist’s marginal cost (MC) is constant at $MC = 20$, and its demand curve is $P = 80 - Q$. What is the profit-maximizing quantity?

Accepted Answer

$Q = 30$

Question 9

Which of the following is an example of a public transfer payment?

Accepted Answer

A government unemployment benefit paid to a worker.

Question 10

If South Africa has a Gini index of 0.6 and the United States has a Gini index of 0.4, what does this imply about income distribution in the U.S. compared to South Africa?

Accepted Answer

Income is more equal in the U.S. than in South Africa.

Question 11

Which of the following transactions is included in U.S. GDP for 2020?

Accepted Answer

A new car produced in Michigan and sold to a Canadian buyer.

Question 12

A firm’s total revenue (TR) is $TR = P 	imes Q$. If the price is $10$ and the firm sells $50$ units, what is the total revenue?

Accepted Answer

$500$

Question 13

Which of the following is a characteristic of a monopoly?

Accepted Answer

The firm is the sole seller of a product with no close substitutes.

Question 14

If a firm’s marginal product of labor (MPL) is decreasing, what is happening to the marginal cost (MC)?

Accepted Answer

Marginal cost (MC) is increasing.

Question 15

Which of the following best explains why a monopoly’s marginal revenue (MR) is always below its price (P)?

Accepted Answer

To sell more units, the monopoly must lower the price on all units sold.

Question 16

If a competitive firm’s marginal cost (MC) is less than the market price (P), the firm should:

Accepted Answer

Increase output to maximize profit.

Question 17

Which of the following is included in the calculation of GDP?

Accepted Answer

The value of a new car produced and sold in the current year.

Question 18

A firm’s average fixed cost (AFC) curve:

Accepted Answer

Declines as output increases.

Question 19

Which of the following is a real-world example of a natural monopoly?

Accepted Answer

A local water utility company.

Question 20

If a firm’s total cost (TC) is $TC = 200 + 10Q$, and it produces 20 units, what is its average total cost (ATC)?

Accepted Answer

$ATC = \frac{200 + 10 	imes 20}{20} = \frac{200 + 200}{20} = 20$

Microeconomics Exam 2 Study Guide: Production, Costs, Market Structures, and GDP

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