Question 1

Suppose a firm’s total product (TP) increases at a decreasing rate as more units of labor are added. What does this imply about the marginal product (MP) of labor?

Accepted Answer

MP is decreasing.

Question 2

If a firm’s marginal cost (MC) curve intersects its average total cost (ATC) curve at $$Q = 100$$, what does this point represent?

Accepted Answer

The minimum point of the ATC curve.

Question 3

Given the following cost data for a firm: $$TC = 100 + 5Q + Q^2$, what is the marginal cost (MC) function?

Accepted Answer

$$MC = 5 + 2Q$$

Question 4

A perfectly competitive firm faces a market price of $$P = 20. $$Its total cost function is $$TC = 50 + 10Q. $$What is the firm’s profit-maximizing output?

Accepted Answer

The firm will produce as much as possible since marginal cost is constant and less than price.

Question 5

Which of the following best describes the relationship between average variable cost (AVC) and average total cost (ATC)?

Accepted Answer

$$ATC = AVC + AFC$$

Question 6

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

Accepted Answer

$$MR = 100 - 4Q$$

Question 7

A firm’s average fixed cost (AFC) decreases as output increases. This is because:

Accepted Answer

Fixed costs are spread over more units of output.

Question 8

Which of the following is a likely result of a binding price ceiling in a competitive market?

Accepted Answer

A shortage of the good.

Question 9

Suppose the government imposes a per-unit tax on a good. Who bears the greater burden of the tax if demand is more inelastic than supply?

Accepted Answer

Consumers.

Question 10

If a monopolist sets output where $$MR = MC$$, and $$P \u003e MC at $$that output, what does this imply about market efficiency?

Accepted Answer

There is deadweight loss and the market is not allocatively efficient.

Question 11

Which of the following best explains why a perfectly competitive firm is a price taker?

Accepted Answer

Each firm’s output is a perfect substitute for others, and the market sets the price.

Question 12

If a firm’s marginal product of labor (MP) is negative, what does this imply about total product (TP)?

Accepted Answer

TP is decreasing as more labor is added.

Question 13

A firm in a perfectly competitive market will shut down in the short run if:

Accepted Answer

Price is less than average variable cost at all output levels.

Question 14

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

Accepted Answer

Free entry and exit.

Question 15

If the government imposes a binding minimum wage above the equilibrium wage, what is the likely result?

Accepted Answer

Unemployment (labor surplus).

Question 16

Suppose a firm’s total revenue (TR) is $$TR = 50Q$$, and its total cost (TC) is $$TC = 10 + 30Q. $$What is the profit-maximizing output in a perfectly competitive market?

Accepted Answer

Any positive quantity, since $$P \u003e MC$$ for all $$Q.$$

Question 17

Which of the following best describes the deadweight loss from monopoly?

Accepted Answer

The reduction in total surplus compared to perfect competition.

Question 18

If a firm’s marginal cost (MC) is below its average total cost (ATC), what happens to ATC as output increases?

Accepted Answer

ATC decreases.

Question 19

Which of the following is true about the demand curve faced by a monopoly compared to a perfectly competitive firm?

Accepted Answer

The monopoly faces a downward-sloping demand curve; the competitive firm faces a horizontal demand curve.

Question 20

Suppose the government imposes a per-unit tax on a good. How does this affect the supply curve?

Accepted Answer

The supply curve shifts vertically upward by the amount of the tax.

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

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