CEA Microeconomic Principles 4

Question 1

The deadweight loss from a monopoly arises because the monopolist:

Accepted Answer

Produces less than the socially optimal output level

Answer

A monopolist restricts output below the competitive level to charge a higher price, creating deadweight loss from foregone mutually beneficial trades.

Question 2

According to the theory of consumer choice, a consumer maximizes utility when:

Accepted Answer

The marginal utility of the last dollar spent is equal across all goods

Answer

Utility maximization requires that MU/P be equal for all goods purchased, so no reallocation of spending can increase total utility.

Question 3

In the long run under perfect competition, economic profit tends toward zero because:

Accepted Answer

New firms enter the market when profits exist, driving down price

Answer

Free entry allows new firms to enter profitable markets, increasing supply and reducing price until economic profit equals zero.

Question 4

Which of the following is a characteristic of a public good?

Accepted Answer

Non-rival in consumption and non-excludable

Answer

Public goods are simultaneously non-rival (one person's use doesn't reduce availability to others) and non-excludable (no one can be prevented from using them).

Question 5

A firm is producing at a point where marginal cost exceeds marginal revenue. To maximize profit, the firm should:

Accepted Answer

Decrease output to increase marginal revenue

Answer

When MC > MR, reducing output lowers costs more than it reduces revenue, increasing profit until MC = MR.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Microeconomic Principles 4