Question 1

In a perfectly competitive market, which of the following is NOT a condition that must be met?

Accepted Answer

There are significant barriers to entry and exit.

Question 2

A firm in a perfectly competitive market will maximize profit by producing the quantity where:

Accepted Answer

$$MR = MC$$

Question 3

Which of the following best describes the law of diminishing returns?

Accepted Answer

After a certain point, each additional worker contributes less output than the previous worker.

Question 4

If a firm’s total revenue is $$\5000$, explicit costs are $$\$$3000$$, and implicit costs are $$\1000$, what is the firm’s economic profit?

Accepted Answer

$$\1000$

Question 5

Suppose a bakery’s total cost of producing 100 loaves of bread is $$\200$, and its total variable cost is $$\$$120. $$What is the average fixed cost per loaf?

Accepted Answer

$$\0.80$

Question 6

A firm should shut down in the short run if:

Accepted Answer

Price is less than average variable cost.

Question 7

Which of the following is an example of a variable cost for a restaurant?

Accepted Answer

Wages paid to hourly kitchen staff.

Question 8

If the price elasticity of demand for a product is $$1.5$$, what does this imply?

Accepted Answer

A 1% increase in price will lead to a 1.5% decrease in quantity demanded.

Question 9

Which of the following best describes producer surplus?

Accepted Answer

The difference between the market price and the minimum price the firm would be willing to accept.

Question 10

A firm’s marginal cost (MC) is calculated as:

Accepted Answer

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

Question 11

If a perfectly competitive firm faces a market price of $$\10$ and its average variable cost is $$\$$8$$, but its average total cost is $$\12$, what should the firm do in the short run?

Accepted Answer

Continue to operate, since price covers average variable cost.

Question 12

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

Accepted Answer

Firms can influence the market price.

Question 13

If the total cost (TC) of producing 50 units is $$\400$ and the total cost of producing 51 units is $$\$$408$$, what is the marginal cost (MC) of the 51st unit?

Accepted Answer

$$\8$

Question 14

Which of the following best describes opportunity cost?

Accepted Answer

The value of the next best alternative foregone.

Question 15

A firm’s average total cost (ATC) is calculated as:

Accepted Answer

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

Question 16

If a firm’s total revenue is $$\2000$ and it sells 100 units, what is the price per unit?

Accepted Answer

$$\20$

Question 17

Which of the following would increase the elasticity of supply for a product?

Accepted Answer

The more easily the firm can hire workers.

Question 18

If the cross-price elasticity of demand between two goods is positive, what does this indicate?

Accepted Answer

The goods are substitutes.

Question 19

A firm’s accounting profit is always:

Accepted Answer

Total revenue minus explicit costs.

Question 20

Which of the following is true about the shutdown rule in the short run?

Accepted Answer

A firm should shut down if price is less than average variable cost.

Perfect Competition, Costs, and Profit Maximization in Microeconomics

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