Question 1

Suppose the market for wheat is perfectly competitive. If the market price is $5 per bushel, and a farmer's marginal cost of producing the 100th bushel is $6, what should the farmer do to maximize profit?

Accepted Answer

Reduce production because marginal cost exceeds price.

Question 2

Which of the following best describes the shape of the marginal cost ($MC$) curve in the short run for a typical firm?

Accepted Answer

It is U-shaped due to initially decreasing, then increasing marginal returns.

Question 3

A monopolist faces the following demand curve: $P = 100 - 2Q$. Its marginal cost is constant at $MC = 20$. What is the profit-maximizing quantity?

Accepted Answer

$Q = 30$

Question 4

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

Accepted Answer

Barriers to entry.

Question 5

If a firm in perfect competition is producing where $P = MC = ATC$, what can we conclude about the firm's profit?

Accepted Answer

The firm is earning zero economic profit (normal profit).

Question 6

Which of the following best explains why oligopolies are interdependent?

Accepted Answer

Each firm's actions directly affect the profits of other firms.

Question 7

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

Accepted Answer

$MC = 25$

Question 8

Which of the following is an example of a natural monopoly?

Accepted Answer

A local water utility company.

Question 9

If a monopolistically competitive firm is earning economic profit in the short run, what will likely happen in the long run?

Accepted Answer

New firms will enter, driving economic profit to zero.

Question 10

Which of the following best describes the concept of economies of scale?

Accepted Answer

As output increases, average total cost decreases.

Question 11

A firm in a perfectly competitive market faces a market price of $P = 10$. Its short-run cost function is $TC = 50 + 4Q$. What is the firm's profit-maximizing output?

Accepted Answer

$Q$ is as large as possible, since $P > MC$ for all $Q$.

Question 12

Which of the following is a key difference between perfect competition and monopoly?

Accepted Answer

Firms in perfect competition are price takers, while a monopolist is a price maker.

Question 13

Which of the following is true about the kinked demand curve model in oligopoly?

Accepted Answer

Firms believe rivals will match price decreases but not price increases.

Question 14

If a monopolist can perfectly price discriminate, what is the consumer surplus?

Accepted Answer

Zero, because the monopolist captures all surplus.

Question 15

Which of the following is an example of product differentiation in monopolistic competition?

Accepted Answer

A coffee shop offering unique flavors and ambiance.

Question 16

Suppose two firms in an oligopoly are deciding whether to advertise. If both advertise, each earns $10,000. If neither advertises, each earns $15,000. If one advertises and the other does not, the advertiser earns $20,000 and the other earns $5,000. What is the Nash equilibrium?

Accepted Answer

Both firms advertise.

Question 17

Which of the following government policies is designed to reduce monopoly power?

Accepted Answer

Antitrust laws such as the Sherman Act.

Question 18

If a firm’s average total cost ($ATC$) is minimized at $Q = 100$ units, but the firm is producing $Q = 50$ units, what is the firm experiencing?

Accepted Answer

Economies of scale.

Question 19

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

Accepted Answer

Shut down if price is less than average variable cost ($P < AVC$).

Question 20

Which of the following is a result of product differentiation in monopolistic competition?

Accepted Answer

Firms face downward-sloping demand curves.

Microeconomics Final Exam Study Guide: Market Structures, Production, and Costs

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