Q: Which of the following best explains why firms in monopolistic competition earn zero economic profit in the long run?

Free entry and exit drive profits to zero.

Q: In the context of oligopoly, what is the main implication of the kinked demand curve model?

Firms face a demand curve that is more elastic for price increases and less elastic for price decreases.

Question 1

Suppose the market for apples is perfectly competitive. If the market price is $5 per apple and a firm’s marginal cost of producing the 10th apple is $5, what should the firm do to maximize profit?

Accepted Answer

Maintain current production because marginal cost equals price.

Question 2

Which of the following best describes the concept of 'diminishing marginal returns' in the short run?

Accepted Answer

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

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 at a level where $P < AVC$, what should the firm do in the short run?

Accepted Answer

Shut down immediately.

Question 6

Which of the following best explains why firms in monopolistic competition earn zero economic profit in the long run?

Accepted Answer

Free entry and exit drive profits to zero.

Question 7

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

Accepted Answer

$MC = 25$

Question 8

In the context of oligopoly, what is the main implication of the kinked demand curve model?

Accepted Answer

Firms face a demand curve that is more elastic for price increases and less elastic for price decreases.

Question 9

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

Accepted Answer

Patents and copyrights

Question 10

A firm in monopolistic competition is producing where $MR = MC$ but $P > ATC$. What does this indicate?

Accepted Answer

The firm is earning positive economic profit.

Question 11

If the price elasticity of demand for a product is $-2$, what will happen to total revenue if the firm increases its price?

Accepted Answer

Total revenue will decrease.

Question 12

Which of the following best describes the Nash Equilibrium in a duopoly game?

Accepted Answer

Each firm chooses its best strategy given the strategy of the other.

Question 13

Suppose a monopolist can perfectly price discriminate. What is the consumer surplus in this market?

Accepted Answer

Consumer surplus is zero.

Question 14

Which of the following is true about the long-run equilibrium in perfect competition?

Accepted Answer

$P = MC = ATC$

Question 15

A firm’s total revenue is $TR = 50Q$ and its total cost is $TC = 10 + 30Q$. What is the profit-maximizing output in perfect competition?

Accepted Answer

Any positive quantity

Question 16

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

Accepted Answer

Perfect competitors are price takers, while monopolists are price makers.

Question 17

If a firm’s marginal cost curve is upward sloping and its average total cost curve is U-shaped, what happens to average total cost when marginal cost is below average total cost?

Accepted Answer

Average total cost decreases.

Question 18

Which of the following is an example of a real-world oligopoly?

Accepted Answer

The automobile industry

Question 19

Suppose a firm’s production function exhibits economies of scale. What happens to average total cost as output increases?

Accepted Answer

Average total cost decreases.

Question 20

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

Accepted Answer

Shut down if $P < AVC$

Microeconomics: Market Structures, Production, and Costs – Study Guide

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