CBE Microeconomics 2

Question 1

When a firm in a perfectly competitive market is producing at a quantity where marginal cost exceeds marginal revenue, the firm should:

Accepted Answer

Decrease output to maximize profit

Answer

When MC > MR, each additional unit reduces profit, so the firm should reduce output until MC = MR.

Question 2

The income effect of a price decrease for a normal good causes consumers to buy:

Accepted Answer

More of the good because real income rises

Answer

A price decrease raises real purchasing power, and for normal goods, higher real income leads to greater consumption.

Question 3

A natural monopoly is best characterized by:

Accepted Answer

Decreasing average total costs throughout the relevant market range

Answer

Natural monopolies arise when one firm can serve the entire market at lower average cost than multiple competing firms due to economies of scale.

Question 4

In game theory, a Nash equilibrium occurs when:

Accepted Answer

No player can improve their payoff by unilaterally changing strategy

Answer

A Nash equilibrium is a stable outcome where each player's strategy is a best response to the strategies of all other players.

Question 5

Price discrimination is most profitable when markets have:

Accepted Answer

Different price elasticities and the ability to prevent resale

Answer

Price discrimination requires charging groups with different elasticities different prices, and arbitrage between segments must be prevented.

(CBE) Certified Business Economist Practice Test