Question 1

In a perfectly competitive market, what is the relationship between price, marginal cost, and marginal revenue at the profit-maximizing output?

Accepted Answer

Price equals marginal cost and marginal revenue: $$P = MC = MR.$$

Question 2

A monopolist maximizes profit by producing the quantity where marginal revenue equals marginal cost. How does the price charged by the monopolist compare to marginal cost at this output?

Accepted Answer

Price is greater than marginal cost: $$P \u003e MC.$$

Question 3

Which of the following best describes the deadweight loss created by a monopoly?

Accepted Answer

It is the loss in total surplus that occurs because the monopolist produces less than the competitive quantity.

Question 4

If a firm faces the following profit-maximizing condition in input markets: $$\frac{MPL}{PL} = \frac{MPK}{PK}$$, what should the firm do if $$\frac{MPL}{PL} \u003e \frac{MPK}{PK}$$?

Accepted Answer

Use more labor and less capital.

Question 5

In monopolistic competition, what happens to economic profit in the long run?

Accepted Answer

Economic profit becomes zero due to free entry and exit.

Question 6

Which market structure is characterized by many sellers, differentiated products, and zero economic profit in the long run?

Accepted Answer

Monopolistic competition

Question 7

A firm in a perfectly competitive market faces a demand curve that is:

Accepted Answer

Horizontal (perfectly elastic)

Question 8

In an oligopoly, what is the significance of Nash equilibrium?

Accepted Answer

It is the outcome where each firm chooses its best strategy given the strategies of other firms.

Question 9

Which of the following is true about perfect price discrimination by a monopolist?

Accepted Answer

Deadweight loss is eliminated.

Question 10

Suppose a monopolist faces the following demand and cost curves: $$D: P = 100 - 2Q$$, $$MC = 20. $$What is the profit-maximizing quantity?

Accepted Answer

Q = 20

Question 11

In the long run, a monopolistic competitor produces at a quantity where:

Accepted Answer

Price equals average total cost but is greater than marginal cost.

Question 12

Which of the following is NOT a characteristic of a monopoly?

Accepted Answer

Free entry and exit

Question 13

In a real-world scenario, suppose a city grants exclusive rights to a single company to provide water services. What market structure does this represent?

Accepted Answer

Monopoly

Question 14

If the wage rate increases in a firm that uses both labor and capital, what happens to the demand for capital?

Accepted Answer

It may change depending on the substitutability between labor and capital.

Question 15

Which of the following best describes collusion in an oligopoly?

Accepted Answer

Firms act jointly as if they were a monopolist, producing monopoly quantity and splitting monopoly profit.

Question 16

In a single price monopoly, what happens to consumer surplus compared to perfect competition?

Accepted Answer

Consumer surplus decreases.

Question 17

Which market structure is most likely to have firms producing at the minimum point of average total cost in the long run?

Accepted Answer

Perfect competition

Question 18

A firm in monopolistic competition faces a downward-sloping demand curve. What does this imply about its pricing power?

Accepted Answer

The firm has some market power and can set its own price.

Question 19

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

Accepted Answer

The smartphone industry dominated by a few major brands.

Question 20

If a monopolist can perfectly price discriminate, what happens to deadweight loss?

Accepted Answer

Deadweight loss is eliminated.

Microeconomics Study Guide: Input Markets and Market Structures

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