PRINCIPLES OF MICROECONOMICS STUDY GUIDE 2026
QUESTIONS AND SOLUTIONS RATED A+
✔✔If the firms in an industry pollute the environment and are not charged for the
pollution, which of the following is true from the standpoint of the efficient use of
resources? - ✔✔Too much of the industry's product is produced, and the price of the
product is lower than the marginal social cost
✔✔Using equal amounts of resources, Country A can produce either 30 tons of
mangoes or 10 tons of bananas, and Country B can produce either 10 tons of mangoes
or 6 tons of bananas. Which of the following is consistent with the information above? -
✔✔Country A: Comparative advantage in mango production
Country B: Comparative advantage in banana production
✔✔The graph above shows the market for chocolates. Suppose that the government
imposes a price floor equal to 0H. As a result, consumer surplus in this market will be
equal to (see graph) - ✔✔ABH
✔✔A firm in monopolistic competition CANNOT do which of the following? - ✔✔Prevent
new firms from entering the market
✔✔Which of the following is a necessary condition for a firm to engage in price
discrimination? - ✔✔The firm is able to set its own price.
✔✔Which of the following is true if total utility is maximized? - ✔✔Marginal utility is
equal to zero.
✔✔If the cross-price elasticity of demand between good A and good B is negative, then
good A and good B are - ✔✔complements
✔✔Assume that a firm in a certain industry hires its workers in a perfectly competitive
labor market. As the firm hires additional workers, the marginal factor cost is -
✔✔constant
✔✔A profit-maximizing monopolist will hire an input up to the point at which -
✔✔marginal factor cost equals marginal revenue product
✔✔The pay-off matrix above gives the profits associated with the strategic choices of
two oligopolistic firms. The first entry in each cell is the profit to Firm A and the second
to Firm B. Suppose that Firm A and Firm B agree to restrict output but have no power to
enforce that agreement. In the long run, each firm will most likely earn which of the
following profits? (see table) - ✔✔Firm A: $30
Firm B: $30
, ✔✔Suppose that the natural monopolist whose cost and revenue curves are depicted
above is subject to government regulation. If the government's objective is to make this
monopoly produce the socially optimal level of output, it should set price equal to (see
graph) - ✔✔P2
✔✔A production possibilities curve can be used to show which of the following? -
✔✔The limits on production due to scarcity of resources
✔✔A firm's short-run total costs increase from $45 to $55 when it increases its
production from one unit to two units. Which of the following is true if the total fixed cost
is $30 ? - ✔✔Fixed costs of production remain at $30 at zero units of output.
✔✔Which of the following will cause the supply of
chocolate to increase? - ✔✔An increase in the price of cocoa butter, a by-product of the
production of chocolate
✔✔In long-run equilibrium, the price charged by a monopolistically competitive firm is -
✔✔equal to its average total cost but greater than its marginal cost
✔✔Economists call a firm's demand for labor a
derived demand because - ✔✔the number of workers hired depends mainly on the
demand for the product the workers produce
✔✔The imposition of an excise tax by the government caused the supply curve to shift
as shown in the diagram above. Which area on the diagram represents the deadweight
loss caused by the tax? (see graph) - ✔✔UWX
✔✔Which of the following causes an increase in the demand for labor? - ✔✔An
increase in the price of the good that labor is producing
✔✔The United States government uses antitrust laws to regulate private markets to -
✔✔promote a competitive market environment
✔✔Which of the following is true of a pure public good? - ✔✔It is difficult to determine a
person's
marginal valuation of it.
✔✔Average total cost is equal to the sum of - ✔✔average fixed cost and average
variable cost
✔✔Compared to a perfectly competitive industry, a profit-maximizing monopoly with
identical costs of production will produce - ✔✔a lower quantity of output and charge a
higher price
QUESTIONS AND SOLUTIONS RATED A+
✔✔If the firms in an industry pollute the environment and are not charged for the
pollution, which of the following is true from the standpoint of the efficient use of
resources? - ✔✔Too much of the industry's product is produced, and the price of the
product is lower than the marginal social cost
✔✔Using equal amounts of resources, Country A can produce either 30 tons of
mangoes or 10 tons of bananas, and Country B can produce either 10 tons of mangoes
or 6 tons of bananas. Which of the following is consistent with the information above? -
✔✔Country A: Comparative advantage in mango production
Country B: Comparative advantage in banana production
✔✔The graph above shows the market for chocolates. Suppose that the government
imposes a price floor equal to 0H. As a result, consumer surplus in this market will be
equal to (see graph) - ✔✔ABH
✔✔A firm in monopolistic competition CANNOT do which of the following? - ✔✔Prevent
new firms from entering the market
✔✔Which of the following is a necessary condition for a firm to engage in price
discrimination? - ✔✔The firm is able to set its own price.
✔✔Which of the following is true if total utility is maximized? - ✔✔Marginal utility is
equal to zero.
✔✔If the cross-price elasticity of demand between good A and good B is negative, then
good A and good B are - ✔✔complements
✔✔Assume that a firm in a certain industry hires its workers in a perfectly competitive
labor market. As the firm hires additional workers, the marginal factor cost is -
✔✔constant
✔✔A profit-maximizing monopolist will hire an input up to the point at which -
✔✔marginal factor cost equals marginal revenue product
✔✔The pay-off matrix above gives the profits associated with the strategic choices of
two oligopolistic firms. The first entry in each cell is the profit to Firm A and the second
to Firm B. Suppose that Firm A and Firm B agree to restrict output but have no power to
enforce that agreement. In the long run, each firm will most likely earn which of the
following profits? (see table) - ✔✔Firm A: $30
Firm B: $30
, ✔✔Suppose that the natural monopolist whose cost and revenue curves are depicted
above is subject to government regulation. If the government's objective is to make this
monopoly produce the socially optimal level of output, it should set price equal to (see
graph) - ✔✔P2
✔✔A production possibilities curve can be used to show which of the following? -
✔✔The limits on production due to scarcity of resources
✔✔A firm's short-run total costs increase from $45 to $55 when it increases its
production from one unit to two units. Which of the following is true if the total fixed cost
is $30 ? - ✔✔Fixed costs of production remain at $30 at zero units of output.
✔✔Which of the following will cause the supply of
chocolate to increase? - ✔✔An increase in the price of cocoa butter, a by-product of the
production of chocolate
✔✔In long-run equilibrium, the price charged by a monopolistically competitive firm is -
✔✔equal to its average total cost but greater than its marginal cost
✔✔Economists call a firm's demand for labor a
derived demand because - ✔✔the number of workers hired depends mainly on the
demand for the product the workers produce
✔✔The imposition of an excise tax by the government caused the supply curve to shift
as shown in the diagram above. Which area on the diagram represents the deadweight
loss caused by the tax? (see graph) - ✔✔UWX
✔✔Which of the following causes an increase in the demand for labor? - ✔✔An
increase in the price of the good that labor is producing
✔✔The United States government uses antitrust laws to regulate private markets to -
✔✔promote a competitive market environment
✔✔Which of the following is true of a pure public good? - ✔✔It is difficult to determine a
person's
marginal valuation of it.
✔✔Average total cost is equal to the sum of - ✔✔average fixed cost and average
variable cost
✔✔Compared to a perfectly competitive industry, a profit-maximizing monopoly with
identical costs of production will produce - ✔✔a lower quantity of output and charge a
higher price
