CEA Microeconomic Principles 2

Question 1

When a firm's marginal revenue equals zero, which of the following is true about demand elasticity?

Accepted Answer

Demand is unit elastic

Answer

When MR = 0, total revenue is maximized, which occurs at the unit-elastic point on a linear demand curve.

Question 2

A perfectly competitive firm's short-run supply curve is best described as the portion of its:

Accepted Answer

MC curve above the AVC curve

Answer

A competitive firm shuts down if price falls below AVC, so its supply curve is the MC curve at and above the minimum AVC.

Question 3

Which market structure is characterized by many sellers, differentiated products, and free entry and exit?

Accepted Answer

Monopolistic competition

Answer

Monopolistic competition features many firms selling differentiated but substitutable products with no significant barriers to entry.

Question 4

The concept of 'derived demand' refers to demand for a good that arises from:

Accepted Answer

The demand for a final product that uses it as an input

Answer

Derived demand is the demand for a factor of production that stems from the demand for the final good it helps produce.

Question 5

If two goods have a positive cross-price elasticity of demand, they are best classified as:

Accepted Answer

Substitutes

Answer

A positive cross-price elasticity means when the price of one good rises, demand for the other increases — the hallmark of substitutes.

(CEA) Certified Economic Analyst Practice Test