MEcon Master of Economics Microeconomics and Market Structure

Question 1

In a perfectly competitive market, a firm's long-run equilibrium occurs where price equals:

Accepted Answer

Both marginal cost and minimum average total cost

Answer

Long-run perfect competition equilibrium requires P = MC (efficiency) and P = min ATC (zero economic profit), ensuring both productive and allocative efficiency.

Question 2

A monopolist maximizes profit by producing where:

Accepted Answer

Marginal revenue equals marginal cost

Answer

All profit-maximizing firms, including monopolists, produce where MR = MC; the monopolist then sets price above MC using its market power.

Question 3

Price discrimination requires that a firm have market power AND be able to:

Accepted Answer

Prevent resale between customer segments

Answer

Without the ability to prevent arbitrage (resale), buyers in the cheap segment would resell to buyers in the expensive segment, eliminating the price gap.

Question 4

Consumer surplus is defined as the difference between:

Accepted Answer

The willingness to pay and the price actually paid

Answer

Consumer surplus is the aggregate gain to buyers — the area under the demand curve above the market price, representing value received beyond what was paid.

Question 5

The concept of 'deadweight loss' in economics refers to:

Accepted Answer

Reduction in total surplus due to market inefficiency

Answer

Deadweight loss represents the total surplus destroyed by a market distortion (monopoly, tax, price control) — transactions that would have been mutually beneficial but do not occur.

MEcon Master of Economics Practice Test

MEcon Master of Economics Practice Test

MEcon Master of Economics Microeconomics and Market Structure