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Principles of Microeconomics
Dr. J. Agesa
For each question, mark the best answer. Good luck!
Figure 1.1
1. Refer to Figure 1.1, the profit-maximizing price and output are________
and ________, respectively.
a.
b.
c.
d.
e.
$10;20
$5;20
$11;20
$10;24
$11;24
2. Refer to Figure 1.1, total revenue at the profit-maximizing output level is
a.
b.
c.
d.
e.
$170
$192
$220
$240
$100
3. Refer to Figure 1.1, if the firm produces 24 units where its average total cost is 8,
then it
a.
b.
c.
d.
e.
makes a profit of $50
makes a profit of $48
make a loss of $50
make a loss of $48
breaks even
Figure 1.2
4. Refer to Figure 1.2, area A represents
a.
b.
c.
d.
e.
diminishing returns
economies of scale
constant returns to scale
diseconomies of scale
economic losses
5. Economies and diseconomies of scale are the reasons
a.
b.
c.
d.
e.
average fixed cost decreases
long-run total cost decreases and then increases
short-run average total cost decreases and then increases
average variable cost decreases and then increases
long-run average cost decreases and then increases
6. If a profit-maximizing, perfectly competitive firm is producing at a loss in the
short run, then
a.
b.
c.
d.
e.
P>AVC.
P<MC
P=AVC+AFC
average revenue is less than price
P<ATC, but P>AVC
7. If total revenue is greater than variable cost but less than total cost, the firm
should
a.
b.
c.
d.
e.
remain in operation because revenues are sufficient to cover variable
costs and some fixed cost
shut down because revenue is not sufficient to cover all costs
not make any decision until it hires an economist
remain in operation because revenue is sufficient to cover all fixed
cost
shut down because P is less than ATC.
Figure 1.3
8. Refer to Figure 1.3, if the market price is $10, the firm’s profits are
a.
b.
c.
d.
e.
$450.
$1,200.
$3,000.
-$1,200.
-$450.
9. Refer to Figure 1.3, at an output level of 100 units, fixed costs equal
a.
b.
c.
d.
e.
$550.
$200.
$450.
$1,000.
$350.
10. Refer to Figure 1.3, at an output level of 300 units, variable costs equal
a. $1,650.
b. $1,800.
c. $450.
d. $3,000.
e. $1,350.
11. Refer to Figure 1.3. If the market price is $10, total revenue for the profitmaximizing firm is
a. $550.
b. $3,000.
c. $1,800.
d. $1,350.
e. $1,000.
12. When the price of a good is a constant, the marginal revenue per unit of output is
the same as:
a. total revenue.
b. average total cost.
c. price.
d. quantity of output.
e. profit per unit.
Figure 1.4
13. In Figure 1.4, if this firm is currently producing 20 units of output, this firm:
a. is at its profit-maximizing point.
b. is losing $20.
c. is earning a total profit of $60.
d. should shut down.
e. is earning a total profit of $3.
14. In Figure 1.4, if this firm is currently producing 20 units of output, this firm:
a. is at its profit-maximizing point.
b. is earning a $3 profit on each item sold.
c. is losing $3 on each item sold.
d. should shut down.
e. is earning a total profit of $3.
Figure 1.5
15. In Figure 1.5, product price in this market is fixed at $35. This firm is currently
operating where MR = MC. Which of the following is true?
a. Price < AVC and this firm should shut down.
b. This firm is earning a profit of zero.
c. This firm could increase profits by increasing output.
d. Price > ATC and the firm is earning a positive profit.
e. Price> AVC, and the firm should stay at its current output.
16. The long-run equilibrium condition for perfect competition is:
a. P=AVC=MR=MC.
b. P=ATC=MR=MC.
c. Q=AVC=MR=MC.
d. Q=ATC=MR=MC.
e. TR=ATC=MR=MC.
17. Which of the following is a characteristic of the monopolistic competition market
structure?
a. A large number firms and a homogeneous product.
b. Few firms and differentiated products.
c. Few firms and similar products.
d. Few firms and a homogeneous product.
e. A large number firms and differentiated products.
Figure 1.6
18. As shown in Figure 1.6, in order to maximize its profit (or minimize its loss),
what price should this firm with market power charge for its product?
a. $60 per unit.
b. $90 per unit.
c. $l20 per unit.
d. $l50 per unit.
19. What should a profit maximizing firm with market power do if she is currently
producing where MC < MR?
a. Increase output until MC= MR.
b. Decrease output until MC = MR.
c. Shut down in the long run.
d. Keep producing at this level.
e. Operate only in the short run.
20. For a monopolist to practice price discrimination, one necessary condition is that
the product offered for sale must be:
a. high quality.
b. expensive.
c. cheap.
d. impossible or difficult to resell.
21. An example of price discrimination is the price charged for:
a. a postage stamp.
b. theater tickets that offer lower prices for children.
c. an economics textbook at a campus bookstore.
d. Any of the above.
22. Compared to a perfectly competitive firm, a monopolist:
a. charges a higher price.
b. produces lower output
c. fails to achieve an efficient allocation of resources.
d. all of the above.
23. In contrast to a perfectly competitive firm, a monopolist can earn:
a. negative economic profit in the long run.
b. zero economic profit in the long run.
c. Positive economic profit in the long run.
d. earns positive economic profit in the short run.
24. Unlike firms in perfect competition, monopolists have control over one of the
following. Which is it?
a. How much to produce
b. Technology
c. What price to charge
d. How many inputs to use
e. Plant size
25. Which of the following statements is true?
a. To maximize profits, a firm must maximize total revenue.
b. In long-run equilibrium, a competitive firm produces at the point of
minimum average total cost.
c. In the short-run, a perfectly competitive firm produces where total cost is
minimum.
d. In the short-run, a perfectly competitive firm will close down whenever
price is less than average total cost.
26. If a firm has no ability to select the price of its product, it:
a.
b.
c.
d.
e.
will go out of business due to losses
is a price-maker
is a monopolistically competitive firm
cannot maximize profit
has a horizontal individual demand curve
Answer:
1.
C
2.
C
3.
B
4.
B
5.
E
6.
E
7.
A
8.
B
9.
C
10.
E
11.
B
12.
C
13.
C
14.
B
15.
E
16.
B
17.
E
18.
C
19.
A
20.
D
21.
B
22.
D
23.
C
24.
C
25.
B
26.
E