Microeconomics Flashcards
7 cards from real CBE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Microeconomics flashcards as text
When a firm in a perfectly competitive market is producing at a quantity where marginal cost exceeds marginal revenue, the firm should:
Answer: Decrease output to maximize profit
When MC > MR, each additional unit reduces profit, so the firm should reduce output until MC = MR.
The income effect of a price decrease for a normal good causes consumers to buy:
Answer: More of the good because real income rises
A price decrease raises real purchasing power, and for normal goods, higher real income leads to greater consumption.
A natural monopoly is best characterized by:
Answer: Decreasing average total costs throughout the relevant market range
Natural monopolies arise when one firm can serve the entire market at lower average cost than multiple competing firms due to economies of scale.
In game theory, a Nash equilibrium occurs when:
Answer: No player can improve their payoff by unilaterally changing strategy
A Nash equilibrium is a stable outcome where each player's strategy is a best response to the strategies of all other players.
Price discrimination is most profitable when markets have:
Answer: Different price elasticities and the ability to prevent resale
Price discrimination requires charging groups with different elasticities different prices, and arbitrage between segments must be prevented.
The Lerner Index measures monopoly power by comparing:
Answer: The markup of price over marginal cost relative to price
The Lerner Index = (P − MC) / P; a higher value indicates greater market power and deviation from competitive pricing.
When two goods are perfect substitutes, the indifference curves are:
Answer: Downward-sloping straight lines
Perfect substitutes have a constant marginal rate of substitution, so indifference curves are linear with a constant negative slope.