ECON 210 Exam 2 Questions with Correct Answers Latest Update 2025/2026
LRATC Curve - Answers Shows the lowest possible cost per unit at which any output can be
produced when all inputs are variable.
Economies of Scale - Answers As output increases, long-run average total cost (LRATC)
decreases due to efficiencies from growth (e.g. specialization, bulk buying).
Diseconomies of Scale - Answers As output increases, LRATC increases due to inefficiencies
(e.g. coordination or management problems).
Economies of Scope - Answers Cost savings from producing multiple products jointly (e.g. a
bakery producing both bread and muffins using the same equipment).
Cost Minimization - Answers Choosing the combination of labor and capital that produces
output at the lowest cost.
Efficient Mix of Labor and Capital - Answers Achieved when the marginal product per dollar
spent on labor equals that of capital: MPL/PL = MPK/PK.
Accounting Profit - Answers Total revenue minus explicit costs.
Economic Profit - Answers Total revenue minus both explicit and implicit (opportunity) costs.
Zero Economic Profit - Answers Firm earns a normal return; doing as well as it could in the next
best alternative.
Profit Maximization Rule - Answers Occurs where marginal revenue (MR) equals marginal cost
(MC).
Profit Formula - Answers π = (P − ATC) × Q.
Perfect Competition Characteristics - Answers Many firms, identical products, no barriers to
entry, price takers, zero long-run profit.
Monopolistic Competition Characteristics - Answers Many firms, differentiated products, free
entry, some price control, zero long-run profit.
Oligopoly Characteristics - Answers Few firms, interdependence, potential for collusion, barriers
to entry.
Monopoly Characteristics - Answers One firm, unique product, high barriers to entry, price maker,
long-run profit possible.
Short-Run vs. Long-Run in Perfect Competition - Answers In the SR, firms can earn profit or loss;
in the LR, entry and exit drive profit to zero.
Why Monopolies Persist in Long Run - Answers Barriers to entry prevent new firms from
LRATC Curve - Answers Shows the lowest possible cost per unit at which any output can be
produced when all inputs are variable.
Economies of Scale - Answers As output increases, long-run average total cost (LRATC)
decreases due to efficiencies from growth (e.g. specialization, bulk buying).
Diseconomies of Scale - Answers As output increases, LRATC increases due to inefficiencies
(e.g. coordination or management problems).
Economies of Scope - Answers Cost savings from producing multiple products jointly (e.g. a
bakery producing both bread and muffins using the same equipment).
Cost Minimization - Answers Choosing the combination of labor and capital that produces
output at the lowest cost.
Efficient Mix of Labor and Capital - Answers Achieved when the marginal product per dollar
spent on labor equals that of capital: MPL/PL = MPK/PK.
Accounting Profit - Answers Total revenue minus explicit costs.
Economic Profit - Answers Total revenue minus both explicit and implicit (opportunity) costs.
Zero Economic Profit - Answers Firm earns a normal return; doing as well as it could in the next
best alternative.
Profit Maximization Rule - Answers Occurs where marginal revenue (MR) equals marginal cost
(MC).
Profit Formula - Answers π = (P − ATC) × Q.
Perfect Competition Characteristics - Answers Many firms, identical products, no barriers to
entry, price takers, zero long-run profit.
Monopolistic Competition Characteristics - Answers Many firms, differentiated products, free
entry, some price control, zero long-run profit.
Oligopoly Characteristics - Answers Few firms, interdependence, potential for collusion, barriers
to entry.
Monopoly Characteristics - Answers One firm, unique product, high barriers to entry, price maker,
long-run profit possible.
Short-Run vs. Long-Run in Perfect Competition - Answers In the SR, firms can earn profit or loss;
in the LR, entry and exit drive profit to zero.
Why Monopolies Persist in Long Run - Answers Barriers to entry prevent new firms from
