AS.180.102
Elements of Microeconomics
Final Exam Review
2025
Multiple Choice (10)
A firm is facing a downward sloping demand curve. If it
produces where marginal cost equals marginal revenue, which
of the following is true? a) The firm maximizes total revenue. b)
The firm maximizes total profit. c) The firm produces at
allocative efficiency. d) The firm produces at the minimum
average total cost.
Answer: b) The firm maximizes total profit.
Rationale: Profit maximization occurs where MR = MC, not
necessarily where revenue is highest or at minimum cost.
2. In the case of perfect competition, the firm’s demand curve is:
a) Downward sloping.
b) Perfectly elastic.
c) Perfectly inelastic.
d) Upward sloping.
Answer: b) Perfectly elastic.
Rationale: Firms in perfect competition are price takers facing
an infinitely elastic demand curve.
3. Which of the following best describes a situation of price
discrimination?
a) Selling the same product at the same price to all customers.
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,b) Charging consumers based on their willingness to pay.
c) Setting prices above marginal cost for all buyers.
d) Colluding to fix a single price.
Answer: b) Charging consumers based on their willingness to
pay.
Rationale: Price discrimination exploits different willingness to
pay to capture more consumer surplus.
4. If a good has a cross-price elasticity of demand equal to -0.5
with respect to the price of another good, then these goods are:
a) Substitutes.
b) Complements.
c) Unrelated goods.
d) Inferior goods.
Answer: b) Complements.
Rationale: Negative cross-price elasticity indicates goods are
complements.
5. In the presence of positive network externalities, the long-run
market equilibrium is most likely characterized by:
a) Multiple competing firms.
b) A single dominant firm or standard.
c) Firms producing at marginal cost.
d) No market clearing price.
2
,Answer: b) A single dominant firm or standard.
Rationale: Positive network externalities tend to lead to a
market tipping toward one dominant standard.
6. Which of the following is true about the long-run supply
curve in a constant cost industry?
a) It slopes upward.
b) It slopes downward.
c) It is perfectly elastic.
d) It is perfectly inelastic.
Answer: c) It is perfectly elastic.
Rationale: In constant cost industries, input prices do not
change with output, so supply is perfectly elastic.
7. If marginal utility per dollar spent on good X is less than
marginal utility per dollar spent on good Y, then to maximize
utility, the consumer should:
a) Buy more of good X.
b) Buy more of good Y.
c) Reduce spending on both goods.
d) Equalize total expenditure on both goods.
Answer: b) Buy more of good Y.
Rationale: Utility maximization requires equalizing marginal
utility per dollar across goods.
8. Which market structure is characterized by firms producing
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, differentiated products but also significant entry barriers?
a) Perfect competition.
b) Monopolistic competition.
c) Oligopoly.
d) Monopoly.
Answer: c) Oligopoly.
Rationale: Oligopolies have few firms, differentiated products,
and high entry barriers.
9. When the price elasticity of supply is less than 1, the supply is
considered:
a) Elastic.
b) Inelastic.
c) Unit elastic.
d) Perfectly elastic.
Answer: b) Inelastic.
Rationale: Elasticity less than 1 means quantity supplied
responds less than proportional to price.
10. The marginal cost curve intersects the average variable cost
curve:
a) At the minimum average variable cost.
b) At the maximum average variable cost.
c) Above the average variable cost curve.
d) Below the average variable cost curve.
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Elements of Microeconomics
Final Exam Review
2025
Multiple Choice (10)
A firm is facing a downward sloping demand curve. If it
produces where marginal cost equals marginal revenue, which
of the following is true? a) The firm maximizes total revenue. b)
The firm maximizes total profit. c) The firm produces at
allocative efficiency. d) The firm produces at the minimum
average total cost.
Answer: b) The firm maximizes total profit.
Rationale: Profit maximization occurs where MR = MC, not
necessarily where revenue is highest or at minimum cost.
2. In the case of perfect competition, the firm’s demand curve is:
a) Downward sloping.
b) Perfectly elastic.
c) Perfectly inelastic.
d) Upward sloping.
Answer: b) Perfectly elastic.
Rationale: Firms in perfect competition are price takers facing
an infinitely elastic demand curve.
3. Which of the following best describes a situation of price
discrimination?
a) Selling the same product at the same price to all customers.
1
,b) Charging consumers based on their willingness to pay.
c) Setting prices above marginal cost for all buyers.
d) Colluding to fix a single price.
Answer: b) Charging consumers based on their willingness to
pay.
Rationale: Price discrimination exploits different willingness to
pay to capture more consumer surplus.
4. If a good has a cross-price elasticity of demand equal to -0.5
with respect to the price of another good, then these goods are:
a) Substitutes.
b) Complements.
c) Unrelated goods.
d) Inferior goods.
Answer: b) Complements.
Rationale: Negative cross-price elasticity indicates goods are
complements.
5. In the presence of positive network externalities, the long-run
market equilibrium is most likely characterized by:
a) Multiple competing firms.
b) A single dominant firm or standard.
c) Firms producing at marginal cost.
d) No market clearing price.
2
,Answer: b) A single dominant firm or standard.
Rationale: Positive network externalities tend to lead to a
market tipping toward one dominant standard.
6. Which of the following is true about the long-run supply
curve in a constant cost industry?
a) It slopes upward.
b) It slopes downward.
c) It is perfectly elastic.
d) It is perfectly inelastic.
Answer: c) It is perfectly elastic.
Rationale: In constant cost industries, input prices do not
change with output, so supply is perfectly elastic.
7. If marginal utility per dollar spent on good X is less than
marginal utility per dollar spent on good Y, then to maximize
utility, the consumer should:
a) Buy more of good X.
b) Buy more of good Y.
c) Reduce spending on both goods.
d) Equalize total expenditure on both goods.
Answer: b) Buy more of good Y.
Rationale: Utility maximization requires equalizing marginal
utility per dollar across goods.
8. Which market structure is characterized by firms producing
3
, differentiated products but also significant entry barriers?
a) Perfect competition.
b) Monopolistic competition.
c) Oligopoly.
d) Monopoly.
Answer: c) Oligopoly.
Rationale: Oligopolies have few firms, differentiated products,
and high entry barriers.
9. When the price elasticity of supply is less than 1, the supply is
considered:
a) Elastic.
b) Inelastic.
c) Unit elastic.
d) Perfectly elastic.
Answer: b) Inelastic.
Rationale: Elasticity less than 1 means quantity supplied
responds less than proportional to price.
10. The marginal cost curve intersects the average variable cost
curve:
a) At the minimum average variable cost.
b) At the maximum average variable cost.
c) Above the average variable cost curve.
d) Below the average variable cost curve.
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