Econ 231 Exam 3 Actual Exam with 100% Error-free
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Section 1: Market Structures & Firm Behavior
Q1: In a perfectly competitive market, a firm's demand curve is:
A. Downward sloping
B. Perfectly elastic (horizontal) at the market price [CORRECT]
C. Perfectly inelastic (vertical)
D. The same as the market demand curve
Correct Answer: B
Rationale: The correct answer is B. In perfect competition, each firm is a price taker, so
it faces a horizontal demand curve at the going market price.
Q2: A wheat farmer in Kansas discovers that the market price of wheat has fallen to $4
per bushel. If the farmer's marginal cost of producing the 500th bushel is $4.50, what
should the farmer do in the short run?
A. Produce the 500th bushel because price equals marginal revenue
B. Not produce the 500th bushel because marginal cost exceeds price [CORRECT]
C. Produce the 500th bushel to cover fixed costs
D. Shut down immediately
Correct Answer: B
Rationale: The correct answer is B. A competitive firm maximizes profit where P = MC.
Since MC exceeds price at the 500th bushel, producing it would reduce profit.
Q3: A perfectly competitive firm has a marginal cost of $10 at its profit-maximizing
output level. If the market price is $10 and the firm's average total cost is $12, what is
true in the short run?
A. The firm is earning positive economic profit
B. The firm is minimizing losses by continuing to produce [CORRECT]
C. The firm should shut down immediately
D. The firm is breaking even
Correct Answer: B
,Rationale: The correct answer is B. Price equals marginal cost at the profit-maximizing
quantity, but since price is below average total cost, the firm is losing money. However, if
price exceeds average variable cost, it minimizes losses by staying open.
Q4: The shutdown rule for a competitive firm states that the firm should cease
production in the short run if:
A. Price falls below average total cost
B. Price falls below average variable cost [CORRECT]
C. Total revenue is less than total cost
D. Marginal cost exceeds marginal revenue
Correct Answer: B
Rationale: The correct answer is B. A firm shuts down when it can't even cover its
variable costs, because every unit produced adds to the loss.
Q5: In the long run, perfectly competitive firms earn zero economic profit because:
A. Government regulation prevents excessive profits
B. Free entry and exit drive price to the minimum of average total cost [CORRECT]
C. Firms collude to keep prices low
D. Demand curves are perfectly elastic
Correct Answer: B
Rationale: The correct answer is B. When firms earn positive profits, new entrants push
supply out and prices down until economic profit disappears.
Q6: The table below shows output, price, and total revenue for a monopolist:
Output | Price | Total Revenue
100 | $20 | $2,000
101 | $19 | $1,919
What is the marginal revenue of producing the 101st unit?
A. $19
B. -$81 [CORRECT]
C. $20
D. $1
Correct Answer: B
, Rationale: The correct answer is B. Marginal revenue is the change in total revenue from
selling one more unit. Total revenue fell from $2,000 to $1,919, so MR is -$81.
Q7: For a monopolist, marginal revenue is less than price because:
A. The monopolist faces a horizontal demand curve
B. The monopolist must lower price on all units to sell more output [CORRECT]
C. The monopolist has no control over price
D. Marginal cost exceeds average revenue
Correct Answer: B
Rationale: The correct answer is B. Unlike a competitive firm, a monopolist faces the
entire downward-sloping market demand curve, so expanding output requires cutting
price across the board.
Q8: A monopolist faces a demand curve where P = 100 - 2Q and has a constant
marginal cost of $20. What quantity maximizes profit?
A. 10
B. 20 [CORRECT]
C. 40
D. 50
Correct Answer: B
Rationale: The correct answer is B. For a monopolist, MR = 100 - 4Q. Setting MR equal
to MC gives 100 - 4Q = 20, so Q = 20.
Q9: Compared to a perfectly competitive market with the same cost structure, a
monopoly produces:
A. More output and charges a higher price
B. Less output and charges a higher price [CORRECT]
C. The same output but charges a higher price
D. Less output but charges a lower price
Correct Answer: B
Rationale: The correct answer is B. Monopolies restrict output to push price above
marginal cost, creating deadweight loss compared to the competitive outcome.
Q10: The deadweight loss of monopoly arises because:
A. The monopolist earns positive economic profit
B. Some mutually beneficial trades do not occur [CORRECT]
Answers | Complete Questions & Graded A+ | Pass
Guaranteed - A+ Graded
Section 1: Market Structures & Firm Behavior
Q1: In a perfectly competitive market, a firm's demand curve is:
A. Downward sloping
B. Perfectly elastic (horizontal) at the market price [CORRECT]
C. Perfectly inelastic (vertical)
D. The same as the market demand curve
Correct Answer: B
Rationale: The correct answer is B. In perfect competition, each firm is a price taker, so
it faces a horizontal demand curve at the going market price.
Q2: A wheat farmer in Kansas discovers that the market price of wheat has fallen to $4
per bushel. If the farmer's marginal cost of producing the 500th bushel is $4.50, what
should the farmer do in the short run?
A. Produce the 500th bushel because price equals marginal revenue
B. Not produce the 500th bushel because marginal cost exceeds price [CORRECT]
C. Produce the 500th bushel to cover fixed costs
D. Shut down immediately
Correct Answer: B
Rationale: The correct answer is B. A competitive firm maximizes profit where P = MC.
Since MC exceeds price at the 500th bushel, producing it would reduce profit.
Q3: A perfectly competitive firm has a marginal cost of $10 at its profit-maximizing
output level. If the market price is $10 and the firm's average total cost is $12, what is
true in the short run?
A. The firm is earning positive economic profit
B. The firm is minimizing losses by continuing to produce [CORRECT]
C. The firm should shut down immediately
D. The firm is breaking even
Correct Answer: B
,Rationale: The correct answer is B. Price equals marginal cost at the profit-maximizing
quantity, but since price is below average total cost, the firm is losing money. However, if
price exceeds average variable cost, it minimizes losses by staying open.
Q4: The shutdown rule for a competitive firm states that the firm should cease
production in the short run if:
A. Price falls below average total cost
B. Price falls below average variable cost [CORRECT]
C. Total revenue is less than total cost
D. Marginal cost exceeds marginal revenue
Correct Answer: B
Rationale: The correct answer is B. A firm shuts down when it can't even cover its
variable costs, because every unit produced adds to the loss.
Q5: In the long run, perfectly competitive firms earn zero economic profit because:
A. Government regulation prevents excessive profits
B. Free entry and exit drive price to the minimum of average total cost [CORRECT]
C. Firms collude to keep prices low
D. Demand curves are perfectly elastic
Correct Answer: B
Rationale: The correct answer is B. When firms earn positive profits, new entrants push
supply out and prices down until economic profit disappears.
Q6: The table below shows output, price, and total revenue for a monopolist:
Output | Price | Total Revenue
100 | $20 | $2,000
101 | $19 | $1,919
What is the marginal revenue of producing the 101st unit?
A. $19
B. -$81 [CORRECT]
C. $20
D. $1
Correct Answer: B
, Rationale: The correct answer is B. Marginal revenue is the change in total revenue from
selling one more unit. Total revenue fell from $2,000 to $1,919, so MR is -$81.
Q7: For a monopolist, marginal revenue is less than price because:
A. The monopolist faces a horizontal demand curve
B. The monopolist must lower price on all units to sell more output [CORRECT]
C. The monopolist has no control over price
D. Marginal cost exceeds average revenue
Correct Answer: B
Rationale: The correct answer is B. Unlike a competitive firm, a monopolist faces the
entire downward-sloping market demand curve, so expanding output requires cutting
price across the board.
Q8: A monopolist faces a demand curve where P = 100 - 2Q and has a constant
marginal cost of $20. What quantity maximizes profit?
A. 10
B. 20 [CORRECT]
C. 40
D. 50
Correct Answer: B
Rationale: The correct answer is B. For a monopolist, MR = 100 - 4Q. Setting MR equal
to MC gives 100 - 4Q = 20, so Q = 20.
Q9: Compared to a perfectly competitive market with the same cost structure, a
monopoly produces:
A. More output and charges a higher price
B. Less output and charges a higher price [CORRECT]
C. The same output but charges a higher price
D. Less output but charges a lower price
Correct Answer: B
Rationale: The correct answer is B. Monopolies restrict output to push price above
marginal cost, creating deadweight loss compared to the competitive outcome.
Q10: The deadweight loss of monopoly arises because:
A. The monopolist earns positive economic profit
B. Some mutually beneficial trades do not occur [CORRECT]
