Q: If a perfectly competitive firm faces a market price of $$P = 10$$, has $$ATC = 8$$, and sells $$Q = 50$$ units, what is its economic profit?

$$Economic\ Profit = (10 - 8) \times 50 = 100$$

Question 1

Which of the following best describes a club good?

Accepted Answer

Non-rival and excludable

Question 2

Suppose a city provides fireworks displays for free on July 4th. What type of good is this, and why might the private market underprovide it?

Accepted Answer

It is a public good because it is non-rival and non-excludable, and the market underprovides it due to free riding.

Question 3

A fishery in a lake is open to all local residents. Over time, the fish population declines due to overfishing. This is an example of:

Accepted Answer

The tragedy of the commons

Question 4

Which equation correctly represents economic profit?

Accepted Answer

$$Economic\ Profit = Total\ Revenue - (Explicit\ Cost + Implicit\ Cost)$$

Question 5

A firm has total fixed costs of $$1000$$ and produces $$200$$ units. What is its average fixed cost?

Accepted Answer

$$AFC = \frac{1000}{200} = 5$$

Question 6

If a perfectly competitive firm faces a market price of $$P = 10$$, has $$ATC = 8$$, and sells $$Q = 50$$ units, what is its economic profit?

Accepted Answer

$$Economic\ Profit = (10 - 8) 	imes 50 = 100$$

Question 7

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

Accepted Answer

$$P \u003c AVC$$

Question 8

Which of the following statements about the marginal product (MP) and average product (AP) is correct?

Accepted Answer

MP intersects AP at the maximum point of AP.

Question 9

A monopolist faces the demand curve $$P = 100 - 2Q. $$What is the equation for its marginal revenue (MR) curve?

Accepted Answer

$$MR = 100 - 4Q$$

Question 10

Suppose a natural monopoly has $$ATC$$ continually declining as output increases. Which regulatory policy is most likely to require a subsidy for the firm to operate?

Accepted Answer

Marginal cost pricing

Question 11

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

Accepted Answer

Significant barriers to entry

Question 12

If a monopolist sets output where $$MR = MC$$ and charges the price from the demand curve at that quantity, what is the likely result compared to perfect competition?

Accepted Answer

Lower output and higher price

Question 13

A firm’s total cost is $$TC = 500 + 20Q. $$What is the marginal cost (MC)?

Accepted Answer

$$MC = 20$$

Question 14

Which of the following best explains why common resources tend to be overused?

Accepted Answer

Because individuals do not fully account for the external cost imposed on others

Question 15

A monopolist’s profit is represented graphically as:

Accepted Answer

The area of the rectangle with height $$(P^* - ATC^*)$$ and width $$Q^*$$

Question 16

If a perfectly competitive firm’s price is below average total cost but above average variable cost, what should the firm do in the short run?

Accepted Answer

Continue operating at a loss

Question 17

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

Accepted Answer

It can increase profit if the firm can separate markets and limit resale

Question 18

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

Accepted Answer

Firms earn zero economic profit

Question 19

Which of the following is the correct shutdown condition for a monopolist in the short run?

Accepted Answer

$$P \u003c AVC$$

Question 20

A two-part tariff is most likely to be used by which type of firm, and for what purpose?

Accepted Answer

A natural monopoly, to cover fixed costs while keeping per-unit price closer to marginal cost

Microeconomics Study Notes: Public Goods, Production & Cost, Perfect Competition, and Monopoly

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