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 until the ratios are equal.

Question 5

In the long run, what happens to economic profit in a monopolistically competitive market?

Accepted Answer

Economic profit becomes zero due to free entry and exit.

Question 6

Which market structure is characterized by many sellers, free entry and exit, and firms selling identical products?

Accepted Answer

Perfect competition

Question 7

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

Accepted Answer

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

Question 8

What is the main cause of monopoly in a market?

Accepted Answer

Barriers to entry

Question 9

Under perfect price discrimination, what happens to consumer surplus and deadweight loss?

Accepted Answer

Consumer surplus is zero and deadweight loss is zero.

Question 10

A firm in monopolistic competition in the long run produces at a quantity where:

Accepted Answer

Price equals average total cost but is greater than marginal cost: $$P = ATC \u003e MC.$$

Question 11

Which of the following is true about the demand curve faced by a firm in perfect competition?

Accepted Answer

It is perfectly elastic (horizontal).

Question 12

In a single price monopoly, what area represents the deadweight loss?

Accepted Answer

The area between the demand and marginal cost curves, from $$Q_M to$$ $$Q_C.$$

Question 13

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

Accepted Answer

Demand for capital will decrease as labor becomes more expensive.

Question 14

Which market structure is most likely to have firms colluding to act as a monopoly?

Accepted Answer

Oligopoly

Question 15

In the context of labor markets, what is the marginal revenue product of labor (MRPL)?

Accepted Answer

The additional revenue from hiring one more unit of labor: $$MRPL = MPL 	imes P_X$$

Question 16

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

Accepted Answer

There are significant barriers to entry.

Question 17

In a monopoly, how is the price determined for the profit-maximizing quantity?

Accepted Answer

From the demand curve at the profit-maximizing quantity.

Question 18

What happens to the oligopoly outcome as the number of firms increases?

Accepted Answer

The market becomes more like perfect competition, and price approaches marginal cost.

Question 19

Which of the following is true about excess capacity in monopolistic competition?

Accepted Answer

Firms produce less than the minimum point of average total cost.

Microeconomics Study Guide: Input Markets, Monopoly, Oligopoly, and Monopolistic Competition

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