PRINCIPLES OF MICROECONOMICS 2026 TEST PAPER
QUESTIONS AND SOLUTIONS RATED A+
✔✔Assume that there are only two buyers in the market for a comic magazine, Carol
and Julio. The graphs above show their individual demand curves. Which of the
following quantity and price combinations is on the market demand curve? (see graph) -
✔✔13, $4
✔✔Marginal revenue is the change in revenue that results from a one-unit increase in
the - ✔✔output level
✔✔In the short run, if the product price of a perfectly competitive firm is less than the
minimum average variable cost, the firm will - ✔✔incur larger losses by continuing to
produce than by shutting down
✔✔Suppose that each business needs a license to operate in a city. The license fee
increases from $400 per year to $500 per year. What effect will this increase have on a
firm's short-run costs? - ✔✔Marginal Cost: No effect
Average Total Cost: increase
Average Variable Cost: no effect
✔✔Which of the following statements is true of
perfectly competitive firms in long-run
equilibrium? - ✔✔Average total cost is at a minimum
✔✔An industry has been dumping its toxic waste free of charge into a river. A
government action to ensure a more efficient use of resources would have which of the
following effects on the industry's output and product price? - ✔✔Output: decrease
Price: increase
✔✔Assume that a perfectly competitive industry is in long-run equilibrium. A permanent
increase in demand will eventually result in - ✔✔an increase in output
✔✔Differences in which of the following are NOT used to explain wage differentials
among workers? - ✔✔Consumer spending
✔✔Which of the following statements must be true in a perfectly competitive market? -
✔✔A firm's marginal revenue equals price.
✔✔A perfectly competitive firm produces in an industry whose product sells at a market
price of $100. At the firm's current rate of production, marginal cost is increasing and is
equal to $110. To maximize its profits, the firm should change its output and price in
which of the following ways? - ✔✔Output: decrease
, Price: no change
✔✔The typical firm in a monopolistically competitive industry earns zero economic profit
in long-run equilibrium because - ✔✔there are no significant restrictions on entering or
exiting the industry
✔✔In the long run, compared with a perfectly competitive firm, a monopolistically
competitive firm with the same costs will have - ✔✔a higher price and lower output
✔✔Which of the following describes what will happen to market price and quantity if
firms in an oligopolistic market form a cartel? (see graph) - ✔✔Price: increase
Quantity: decrease
✔✔The diagram above shows the cost and revenue curves for a monopolist. What are
the profit-maximizing output and price? (see table) - ✔✔Output: Q4
Price: P3
✔✔Imperfectly competitive firms may be allocatively inefficient because they produce at
a level of output such that - ✔✔price is greater than marginal cost
✔✔In a market economy, public goods are unlikely to be provided in sufficient quantity
by the private sector because - ✔✔the use of public goods cannot be withheld from
those who do not pay for them
✔✔Assume that both input and product markets are competitive. If capital is fixed and
the product price increases, in the short run firms will increase production by increasing
- ✔✔labor until the value of the marginal product of labor equals the wage rate
✔✔Which of the following is an important attribute of a market economy? -
✔✔Protection of property rights
✔✔If hiring an additional worker would increase a firm's total cost by less than it would
increase its total revenue, the firm should - ✔✔hire that worker
✔✔If a firm wants to produce a given amount of output at the lowest possible cost, it
should use resources in such a manner that - ✔✔the marginal products per dollar spent
on each resource are equal
✔✔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
QUESTIONS AND SOLUTIONS RATED A+
✔✔Assume that there are only two buyers in the market for a comic magazine, Carol
and Julio. The graphs above show their individual demand curves. Which of the
following quantity and price combinations is on the market demand curve? (see graph) -
✔✔13, $4
✔✔Marginal revenue is the change in revenue that results from a one-unit increase in
the - ✔✔output level
✔✔In the short run, if the product price of a perfectly competitive firm is less than the
minimum average variable cost, the firm will - ✔✔incur larger losses by continuing to
produce than by shutting down
✔✔Suppose that each business needs a license to operate in a city. The license fee
increases from $400 per year to $500 per year. What effect will this increase have on a
firm's short-run costs? - ✔✔Marginal Cost: No effect
Average Total Cost: increase
Average Variable Cost: no effect
✔✔Which of the following statements is true of
perfectly competitive firms in long-run
equilibrium? - ✔✔Average total cost is at a minimum
✔✔An industry has been dumping its toxic waste free of charge into a river. A
government action to ensure a more efficient use of resources would have which of the
following effects on the industry's output and product price? - ✔✔Output: decrease
Price: increase
✔✔Assume that a perfectly competitive industry is in long-run equilibrium. A permanent
increase in demand will eventually result in - ✔✔an increase in output
✔✔Differences in which of the following are NOT used to explain wage differentials
among workers? - ✔✔Consumer spending
✔✔Which of the following statements must be true in a perfectly competitive market? -
✔✔A firm's marginal revenue equals price.
✔✔A perfectly competitive firm produces in an industry whose product sells at a market
price of $100. At the firm's current rate of production, marginal cost is increasing and is
equal to $110. To maximize its profits, the firm should change its output and price in
which of the following ways? - ✔✔Output: decrease
, Price: no change
✔✔The typical firm in a monopolistically competitive industry earns zero economic profit
in long-run equilibrium because - ✔✔there are no significant restrictions on entering or
exiting the industry
✔✔In the long run, compared with a perfectly competitive firm, a monopolistically
competitive firm with the same costs will have - ✔✔a higher price and lower output
✔✔Which of the following describes what will happen to market price and quantity if
firms in an oligopolistic market form a cartel? (see graph) - ✔✔Price: increase
Quantity: decrease
✔✔The diagram above shows the cost and revenue curves for a monopolist. What are
the profit-maximizing output and price? (see table) - ✔✔Output: Q4
Price: P3
✔✔Imperfectly competitive firms may be allocatively inefficient because they produce at
a level of output such that - ✔✔price is greater than marginal cost
✔✔In a market economy, public goods are unlikely to be provided in sufficient quantity
by the private sector because - ✔✔the use of public goods cannot be withheld from
those who do not pay for them
✔✔Assume that both input and product markets are competitive. If capital is fixed and
the product price increases, in the short run firms will increase production by increasing
- ✔✔labor until the value of the marginal product of labor equals the wage rate
✔✔Which of the following is an important attribute of a market economy? -
✔✔Protection of property rights
✔✔If hiring an additional worker would increase a firm's total cost by less than it would
increase its total revenue, the firm should - ✔✔hire that worker
✔✔If a firm wants to produce a given amount of output at the lowest possible cost, it
should use resources in such a manner that - ✔✔the marginal products per dollar spent
on each resource are equal
✔✔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
