Question 1

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

Accepted Answer

Because resources are allocated so that price equals marginal cost, ensuring no deadweight loss.

Question 2

Suppose the government imposes a price ceiling below the equilibrium price in the rental housing market. What is the most likely outcome?

Accepted Answer

A shortage of rental units, as renters demand more than landlords supply.

Question 3

Deadweight loss occurs when:

Accepted Answer

There is a loss of total surplus due to market interventions such as price floors or ceilings.

Question 4

A firm experiences the law of diminishing returns when:

Accepted Answer

Adding more variable inputs leads to decreasing marginal product after a certain point.

Question 5

Which formula correctly represents average cost (AC)?

Accepted Answer

$$ AC = \frac{TC}{Q} $$

Question 6

In the short run, a firm should shut down if:

Accepted Answer

Price is less than average variable cost.

Question 7

In perfect competition, the profit-maximizing output is found where:

Accepted Answer

$$ P = MR = MC $$

Question 8

A monopoly is considered inefficient because:

Accepted Answer

It restricts output and charges a price above marginal cost, creating deadweight loss.

Question 9

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

Accepted Answer

The monopoly will break even, but there may still be some deadweight loss.

Question 10

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 11

A firm in perfect competition will break even in the short run if:

Accepted Answer

$$ P = ATC $$

Question 12

Suppose a minimum wage (price floor) is set above the equilibrium wage in the labor market. What is the most likely effect?

Accepted Answer

A surplus of labor, as more workers are willing to work than firms demand.

Question 13

If a firm’s marginal cost (MC) is rising and its average cost (AC) is below MC, what happens to AC?

Accepted Answer

AC increases.

Question 14

Which equation represents marginal cost (MC)?

Accepted Answer

$$ MC = \frac{\Delta TC}{\Delta Q} $$

Question 15

In the long run equilibrium of a perfectly competitive market, firms:

Accepted Answer

Earn zero economic profit.

Question 16

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$ MR = MC $$

Question 17

Which of the following is a real-world example of a price floor?

Accepted Answer

Minimum wage laws.

Question 18

If a firm’s total cost (TC) is $500 and it produces 100 units, what is its average cost (AC)?

Accepted Answer

$$ AC = \frac{500}{100} = 5 $$

Question 19

Which of the following statements about regulating natural monopolies is correct?

Accepted Answer

Regulation can force the monopoly to set price equal to marginal cost, but this may result in losses.

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

Study Guide - Practice Questions