CEA Microeconomic Principles 3

Question 1

In a two-part tariff pricing strategy, a firm charges:

Accepted Answer

A fixed entry fee plus a per-unit usage price

Answer

A two-part tariff consists of a lump-sum access fee and a per-unit charge, allowing firms to capture more consumer surplus.

Question 2

The Lerner Index measures market power as:

Accepted Answer

(P - MC) / P

Answer

The Lerner Index equals (P - MC) / P and ranges from 0 (perfect competition) to 1 (pure monopoly).

Question 3

Which of the following is an example of a negative production externality?

Accepted Answer

A factory releasing pollutants into a river

Answer

A factory polluting a river imposes uncompensated costs on third parties, making it a classic negative production externality.

Question 4

When a firm experiences diseconomies of scale, its long-run average total cost curve is:

Accepted Answer

Rising as output increases

Answer

Diseconomies of scale occur when increasing output causes long-run average total cost to rise, often due to coordination problems.

Question 5

A price ceiling set below the equilibrium price will result in:

Accepted Answer

A shortage of the good

Answer

A binding price ceiling holds price below equilibrium, causing quantity demanded to exceed quantity supplied — a shortage.

(CEA) Certified Economic Analyst Practice Test