Question 1

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

Accepted Answer

Individual buyers and sellers can influence the market price.

Question 2

Suppose a cheesemaker is deciding how many workers to hire. According to the law of diminishing returns, what happens as more workers are added?

Accepted Answer

Marginal product of labor eventually decreases.

Question 3

If a firm’s total cost is $$500, its fixed cost is 200$$, and it produces 100 units, what is its average variable cost (AVC)?

Accepted Answer

$$AVC = \frac{500 - 200}{100} = 3$$

Question 4

A firm should shut down in the short run if:

Accepted Answer

Price is less than average variable cost (AVC).

Question 5

Which formula correctly represents marginal cost (MC)?

Accepted Answer

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

Question 6

In the short run, which input is typically considered fixed for a firm?

Accepted Answer

Physical capital

Question 7

If a firm produces where marginal revenue (MR) equals marginal cost (MC), what is the firm achieving?

Accepted Answer

Maximizing profit

Question 8

Which of the following best describes economic profit?

Accepted Answer

Total revenue minus both explicit and implicit costs

Question 9

A firm faces the following costs: fixed cost = $$100, variable cost = 300$$, output = 50 units. What is the average total cost (ATC)?

Accepted Answer

$$ATC = \frac{100 + 300}{50} = 8$$

Question 10

Which of the following would cause a rightward shift of the supply curve for cheese?

Accepted Answer

Improved production technology

Question 11

If the price elasticity of supply $$e_s is $$greater than 1, supply is:

Accepted Answer

Elastic

Question 12

Which of the following is true about sunk costs?

Accepted Answer

They are costs that have already been incurred and cannot be recovered.

Question 13

Producer surplus is defined as:

Accepted Answer

The difference between the market price and the supply curve.

Question 14

In the long run, all factors of production are:

Accepted Answer

Variable

Question 15

If a firm doubles all its inputs and output more than doubles, the firm is experiencing:

Accepted Answer

Economies of scale

Question 16

Suppose the market price for cheese is $$P = 10$$, and the average variable cost (AVC) is $$8$$, while the average total cost (ATC) is $$12. $$What should the firm do in the short run?

Accepted Answer

Continue operating because $$P \u003e AVC$$

Question 17

Which of the following best describes the supply curve in a perfectly competitive market?

Accepted Answer

It shows the relationship between price and quantity supplied.

Question 18

A firm will enter a market in the long run if:

Accepted Answer

It expects to earn positive economic profits.

Question 19

Which of the following would make the price elasticity of supply higher?

Accepted Answer

More inventory available

Question 20

If a firm’s marginal product of labor becomes negative, what does this imply?

Accepted Answer

Adding more workers decreases total output.

Sellers and Incentives in Perfectly Competitive Markets: Microeconomics Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards