Question 1

Suppose the government imposes a price ceiling on apartment rents that is below the equilibrium price. Which of the following is the most likely outcome in the rental market?

Accepted Answer

A shortage of apartments, as the quantity demanded exceeds the quantity supplied.

Question 2

Which of the following best describes deadweight loss resulting from a price floor set above the equilibrium price?

Accepted Answer

It is the loss of total surplus due to trades that no longer occur.

Question 3

A firm in perfect competition faces the following cost structure: Marginal Cost (MC) is given by $$ MC = 2Q $$, and the market price is $$ P = 10 . $$What is the profit-maximizing output for the firm?

Accepted Answer

$$ Q = 5 $$

Question 4

Which of the following statements about the law of diminishing returns is correct?

Accepted Answer

It states that as more of a variable input is added to a fixed input, marginal product of the variable input eventually decreases.

Question 5

In the short run, a perfectly competitive firm will shut down if:

Accepted Answer

Price is less than average variable cost.

Question 6

A monopoly sets its output where:

Accepted Answer

$$ MR = MC $$

Question 7

Which of the following is a reason why monopolies are considered inefficient compared to perfectly competitive markets?

Accepted Answer

Monopolies restrict output and charge a price above marginal cost, creating deadweight loss.

Question 8

If a natural monopoly is regulated using average cost pricing, what is the likely outcome?

Accepted Answer

The monopoly will earn zero economic profit.

Question 9

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

Accepted Answer

$$ MC = 5 + 2Q $$

Question 10

In the long run, firms in a perfectly competitive market earn zero economic profit because:

Accepted Answer

Firms can freely enter and exit the market, driving price to the level of average total cost.

Question 11

Which of the following best describes the difference between short run and long run costs?

Accepted Answer

In the short run, at least one input is fixed; in the long run, all inputs are variable.

Question 12

A minimum wage law is an example of:

Accepted Answer

A price floor.

Question 13

If the market price is $$ P = 20 $$, average variable cost is $$ AVC = 15 $$, and average total cost is $$ ATC = 25 $$, what should a perfectly competitive firm do in the short run?

Accepted Answer

Continue to produce, as price covers average variable cost.

Question 14

Which of the following is true about the break-even point for a perfectly competitive firm?

Accepted Answer

It occurs where $$ P = ATC .$$

Question 15

Suppose a monopoly faces the demand curve $$ P = 100 - 2Q $$ and has marginal cost $$ MC = 20 . $$What is the profit-maximizing quantity?

Accepted Answer

$$ Q = 20 $$

Question 16

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Products are differentiated.

Question 17

If a government wants to eliminate the deadweight loss caused by a monopoly, which policy would be most effective?

Accepted Answer

Regulating the monopoly to set price equal to marginal cost.

Question 18

Which of the following best explains why competitive markets are considered efficient?

Accepted Answer

They allocate resources such that $$ P = MC $$, maximizing total surplus.

Question 19

A firm’s average total cost (ATC) is minimized when:

Accepted Answer

$$ MC = ATC $$

Question 20

Suppose the government sets a price ceiling above the equilibrium price. What is the effect on the market?

Accepted Answer

There will be no effect.

Microeconomics Study Notes: Market Efficiency, Government Actions, Costs, Perfect Competition, and Monopoly

Study Guide - Practice Questions

Study Guide - Flashcards