Nguyễn Ngọc Phương Anh - TA Microeconomics

1. Which of the following is not a characteristic of the structure of perfectly competitive

markets?
a. Each individual firm is small in size relative to the overall market.
b. Few sellers.
c. Homogeneous product.
d. Easy, low cost entry and exit.

2. Market structure is defined as the:

a. number of firms in each industry.
b. similarity of the product sold.
c. ease of entry into and exit from the market.
d. all of these.
3. Which of the following is a characteristic of a competitive price-taker market?
a. Profit maximizing firms in the market will expand output until price equals
average variable cost.
b. The market demand curve for the product is a horizontal line.
c. There are many firms in the market, each producing a small share of total
market output.
d. The product produced by each of the firms is differentiated.

4. Which of the following best illustrates a perfectly competitive market?

a. Soft drinks.
b. Automobiles.
c. Electric power.
d. Soybean farmers.

5. A perfectly competitive firm in the short-run maximizes its profit by producing the
output where:
a. marginal cost equals price.
b. marginal cost equals marginal revenue.
c. total revenue minus total cost is at a maximum.
d. all of these.

6. A perfectly competitive firm sells its output for $100 per unit and marginal cost is
$100 per unit. To maximize short-run profit, the firm should:
a. increase output.
b. decrease output.
c. maintain its current output.
d. shut down.

7. . If a firm equates MR and MC, then:

a. TR is at a maximum, and TC is at a minimum.
b. output is at a maximum.
c. profits are at a maximum or losses are at a minimum.
d. both TR and TC are at a maximum.

8. If marginal revenue exceeds marginal cost, profit maximizers should:

 Nguyễn Ngọc Phương Anh - TA Microeconomics

a. reduce output until they are equal.

b. increase output until they are equal.
c. increase output until profits are zero.
d. decrease output unless profits are zero.

9. In Exhibit, product price in this market is fixed at $14. This firm is currently operating
where MR = MC. What do you advise this firm to do?
a. This firm should shut down.
b. This firm could increase profits by increasing output.
c. This firm could increase profits by decreasing output.
d. This firm should continue to operate at its current output.

10. Which of the following is a key characteristic of the long-run competitive equilibrium
that distinguishes it from the short-run competitive equilibrium?
a. Free entry to reduce short-run profits, or free exit to reduce short-run losses.
b. Economic profits are positive, but cannot be negative.
c. Marginal revenue is greater than marginal cost.
d. Average revenue is less than average cost.

11. 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.
 Nguyễn Ngọc Phương Anh - TA Microeconomics

12. In Exhibit, if this firm is currently producing 20 units of output, this firm:
a. is at its profit-maximizing point.
b. could increase profits by increasing output.
c. could increase profits by decreasing output.
d. should shut down.

13. Which barrier to entry results in the creation of a natural monopoly?

a. Legal barriers like government franchises.
b. Economies of scale.
c. Ownership of a vital resource.
d. Patents and copyrights.

14. Which of the following is a difference between a monopolist and a firm in perfect
competition?
a. The marginal revenue curve is downward-sloping.
b. Marginal revenue equals price.
c. Economic profits are zero in the long-run.
d. The marginal revenue curve lies above the demand curve.

15. Under monopoly, a firm:

a. is a price taker.
b. maximizes profit by setting marginal cost equal to marginal revenue.
c. will shut down in the short-run if price falls short of average total cost.
d. always earns a pure economic profit.

16. Assume a monopolist charges a price corresponding to the intersection of the

marginal cost and marginal revenue curves. If this price is between its average
variable cost and average total cost curves, the firm will:
a. earn an economic profit.
 Nguyễn Ngọc Phương Anh - TA Microeconomics

b. continue to operate in the short run.

c. shut down.
d. all of these are true.

17. Price discrimination occurs when:

a. firms maximize their profit by setting price equal to marginal cost.
b. a seller charges different prices to different consumers of the same product or
service.
c. a seller charges the same price to consumers of a different product or service.
d. a seller charges different prices to consumers, discriminating by race or
gender of the consumer.
18. Which of the following is true about a monopoly?
a. A monopoly charges a higher price and produces a lower output level than if
the market were competitive.
b. A monopoly is guaranteed an economic profit.
c. A monopoly charges the highest possible price.
d. A monopoly will shut down whenever losses are incurred.

19. A monopoly sets a market price that is higher than the marginal cost of production.
This fact implies that a monopoly's allocation of resources is:
a. Unfair.
b. Inefficient.
c. Discriminatory.
d. Excessive.

20. Under both perfect competition and monopoly, a firm:

a. is a price taker.
b. maximizes profit by setting marginal cost equal to marginal revenue.
c. will shut down in the short-run if price falls short of average total cost.
d. always earns a pure economic profit.

21. Which of the following is a characteristic of the monopolistic competition market

structure?
a. Many firms and a homogeneous product.
b. Few firms and differentiated products.
c. Few firms and a homogeneous product.
d. Many firms and differentiated products.

22. Which of the following is true in long-run equilibrium for both perfect competition and
monopolistic competition?
a. Accounting profit is zero.
b. Marginal cost equals price.
c. Long-run average cost is at a minimum.
d. Economic profit is zero.

23. Monopolistic competition is inefficient because:

a. firms earn positive economic profits.
b. the firms' marginal costs and marginal revenues are not equal.
 Nguyễn Ngọc Phương Anh - TA Microeconomics

c. firms have excess capacity in the long run.

d. entry is difficult.

24. Supporters of advertising claim that it:

a. increases the variety of products.
b. attacks established brand loyalties.
c. allows new firms to compete.
d. all of these.

25. One key characteristic that is distinctive of an oligopoly market is that:

a. the demand curve facing each firm is downward sloping, with a marginal
revenue curve that lies below the firm's demand curve.
b. the decisions of one seller often influences the price of products, the output,
and the profits of rival firms.
c. there is only one firm that produces a product for which there are no good
substitutes.
d. there are many sellers in the market and each is small relative to the total
market.

26. If all firms in a monopolistic competitive industry in the long run:

a. a number of new firms will enter the industry.
b. some firms will leave the industry.
c. firms in the industry earn zero economic profits.
d. all firms will leave the industry.

27. In which of the following market structures must the price and output decisions of an
individual firm include the possible price and output reactions of the firm's rivals?
a. Monopoly.
b. Oligopoly.
c. Perfect competition.
d. Cartel.

28. . Which of the following best describes a cartel?

a. As a monopolist, a group of monopolistically competitive firms that jointly
reduce output and raise the price.
b. As a monopolist, a group of cooperating oligopolists that jointly reduce output
and raise the price.
c. A monopolist that reduces output and raises price.
d. A group of identical non-cooperative oligopolists that are able to reproduce a
monopoly equilibrium through price rivalry.

29. Which of the following is a game theory strategy for oligopolists to avoid a low-price
outcome?
a. Tit-for-tat
b. Win-win
c. Last in-first out
d. Second best
30. . In the long run, a monopolistically competitive firm will set price:
 Nguyễn Ngọc Phương Anh - TA Microeconomics

a. at the intersection of the marginal cost and demand curves.

b. at the intersection of the average total cost and demand curves.
c. higher than the competitive level, but lower than the monopoly price.
d. higher than the marginal cost, but lower than average total cost.

31. Refer to the following payoff matrix (Si,ti) to answer the questions. The dominant
strategy for Player 2 is:

a. t2
b. t1 and t2
c. t3
d. None of the above

32. Based on the following payoff matrix (A,B), what are the Nash equilibrium strategies
for Firm A and Firm B, respectively

a. (low price, low price)

b. (high price, high price)
c. (low price, high price)
d. (low price, low price) and (high price, high price)

33. The dominant strategy for Player 1 is:

 Nguyễn Ngọc Phương Anh - TA Microeconomics

a. S1
b. S2
c. S1 and S2
d. None of the above

34. Which of the following are NOT barrier to entry?

a. A well - established network of long - term suppliers and retailers in the whole
country
b. A trademark
c. A certificate of green business practices
d. All of the above are the barriers to entry

35. If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last
dollar spent on cola, and Smith is a utility-maximizing consumer, he should:
a. decrease his spending on cola.
b. decrease his spending on cola and increase his spending on shirts.
c. increase his spending on shirts.
d. increase his spending on cola and decrease his spending on shirts.

36. When the price of a product falls for a normal good, the:
a. income and substitution effects will encourage consumers to purchase more
of the product.
b. income and substitution effects will encourage consumers to purchase less of
the product.
c. substitution effect will encourage consumers to purchase less of the product
and the income effect will encourage them to purchase more.
d. substitution effect will encourage consumers to purchase more of the product
and the income effect will encourage them to purchase less.
37. The reason the substitution effect works to encourage a consumer to buy less of a
product when its price increases is:
a. the real income of the consumer has been increased.
b. the real income of the consumer has been decreased.
c. the product is now relatively more expensive than it was before.
d. other products are now relatively more expensive than they were before.
 Nguyễn Ngọc Phương Anh - TA Microeconomics

38. George consumes only two goods, pizza and compact discs. Both are normal goods
for George. Suppose the price of pizza decreases. George's consumption of compact
discs will:
a. increase due to the income effect.
b. increase due to the substitution effect.
c. increase due to a negative income elasticity.
d. emain unchanged, since the income elasticity of pizza is greater than 0.

39. Which of the following defines marginal utility?

a. the change in total utility divided by the price of a product
b. the maximum amount of satisfaction from consuming a product
c. the total satisfaction received from consuming as much of the product that is
available for consumption
d. the additional satisfaction received from consuming one more unit of a
product

40. The consumer equilibrium condition for two goods is achieved by equating the:
a. marginal utility of one to the price of the other for the last dollar spent on each
good.
b. prices of both goods for the last dollar spent on each good.
c. marginal utilities of both goods for the last dollar spent on each good.
d. ratios of marginal utility to the price of both goods for the last dollar spent on
each good.

41. Assume that an individual consumes only hotdogs and colas and that the last hotdog
consumed yields 15 utils and the last cola 10 utils. If the price of a hotdog is $1 and
the price of a cola is $.50, we can conclude that the:
a. consumer should consume more hotdogs and less cola.
b. price of hotdogs is too high.
c. consumer should consume fewer hotdogs and more cola.
d. consumer is in equilibrium.

42. Suppose a consumer wants to obtain the highest possible satisfaction from goods
purchased on a fixed budget. Which of the following must be equal for all goods?
a. Total utility.
b. Marginal utility.
c. Average utility.
d. Marginal utility per dollar.

43. Which of the following statements is true about indifference curves?

a. Indifference curves slope upward to the right.
b. Indifference curves represent preferences that are consistent with the law of
diminishing marginal utility.
c. Indifference curves cannot intersect.
d. All of the above are true.

44. The budget constraint shows:

a. All the goods and services that a consumer wants to consume
 Nguyễn Ngọc Phương Anh - TA Microeconomics

b. All the prices of the goods and services that a consumer wants to consume
c. The combination of goods and services that a consumer can afford to
consume, given their income and the prices of the goods and services
d. The maximum amount of money a consumer is willing to spend on a good or
service.
45. As known, fixed costs do not vary with quantity of output produced, and variable
costs do vary with the quantity of output produced. Identify which costs below are
the fixed cost
a. rent cost for business
b. bookkeeper’s salary
c. machine cost
d. All of the above
46. Marginal cost
a. is the increase in the cost obtained from an additional unit of that input.
b. is the ratio between change in cost and change in price
c. is the increase in total cost that arises from an extra unit of production
d. is the ratio between change in cost and change in price
47. A government created monopoly arises when
a. A government spending in a certain industry gives rights to monopoly power.
b. the government gives a firm the exclusive right to sell some good or service.
c. the government exercises its market control by encouraging competition
among sellers.
d. All of the above could qualify as government created monopolies.
48. Assume that a college student purchase only Sting and Pizza. The substitution effect
associated with a decrease in the price of a Pizza will result in
a. decrease in the consumption of Pizza and an increase in the consumption of
Sting.
b. an increase in the consumption of Pizza and a decrease in the consumption
of Sting.
c. only a decrease in the consumption of Sting.
d. only an increase in the consumption of Sting.
49. Suppose demand for a monopoly's product rises so that its profit maximizing price is
below average total cost, but above average variable cost. How much output should
the firm supply?
a. It should shut down and produce no output
b. It should the produce level of output where marginal revenue equals marginal
cost, and earn positive profits
c. It should produce the level of output where marginal revenue is below
marginal cost, and earn negative profits
d. It should the produce the level of output where marginal revenue equal
marginal cost, and earn negative profits (loss money)
50. Monopolistic competition differs from perfect competition primarily because
a. in monopolistic competition, firms can differentiate their products
b. in perfect competition, firms can differentiate their products
c. in monopolistic competition, entry into the industry is blocked
d. in monopolistic competition, there are relatively few barriers to entry

Chap 13:
Nguyễn Ngọc Phương Anh - TA Microeconomics
Nguyễn Ngọc Phương Anh - TA Microeconomics
 Nguyễn Ngọc Phương Anh - TA Microeconomics

e. Comparing the column for marginal product with the column for marginal cost, you
can observe that the point of diminishing marginal returns corresponds to the point
where marginal cost starts to increase. This is because as the number of workers
increases, the additional output (marginal product) decreases, leading to higher
marginal cost.

f. Comparing the column for average total cost with the column for marginal cost, you
can see that when average total cost is declining, marginal cost is below it. When
average total cost is rising, marginal cost is above it. This is consistent with the
relationship between average cost and marginal cost in the short run. When marginal
cost is below average total cost, average total cost tends to fall, and when marginal
cost is above average total cost, average total cost tends to rise.
 Nguyễn Ngọc Phương Anh - TA Microeconomics

c. Competitive Industry and Long-Run Equilibrium:

To determine if the firm is in a competitive industry and if the industry is in long-run

equilibrium, we need more information. However, some observations can be made:

• In a competitive industry, firms are price takers, meaning they take the market
price as given. In this case, total revenue increases by a constant amount for
each additional unit sold, indicating a competitive market.
• Long-run equilibrium in a competitive market occurs when firms earn zero
economic profit. In the given table, when the firm produces 5 units, profit is
maximized at $21. In the long run, in a competitive market, economic profit
tends to be driven to zero as firms enter or exit. Therefore, if the industry is in
long-run equilibrium, economic profit should approach zero over time.

Chapter 15:
Nguyễn Ngọc Phương Anh - TA Microeconomics
 Nguyễn Ngọc Phương Anh - TA Microeconomics

d. Shade in the Deadweight Loss:

The deadweight loss is the area between the demand curve and the marginal cost curve to the

left of the profit-maximizing quantity. In this scenario, it would be the area between the

demand curve and marginal cost curve to the left of the quantity of 600,000 books.

e. Effect of Higher Author Payment on Price:

If the author were paid $3 million instead of $2 million, fixed costs would increase, and the

profit-maximizing quantity would likely decrease. This is because the higher fixed cost needs

to be spread over a smaller quantity to achieve maximum profit. The price might also increase.

f. Publisher Not Profit-Maximizing but Concerned with Economic Efficiency:

If the publisher is concerned with maximizing economic efficiency, it would set the price at the

marginal cost, which is $10. At this price, the quantity demanded would be 800,000 books. The

profit at this price would be $8,000,000, which is the area between the demand curve and the

marginal cost curve at this quantity.