1. Explain the difference between the meaning of short run and long run. What
resources are considered fixed in the short run? What resources are fixed in the
2. A restaurant kitchen has one oven and three cooks. If the restaurant is suffering
from diminishing returns, what can it do to solve the problem?
3. Why does an entrepreneur stay in a competitive market when economic profits
4. What is meant by shutdown? Why would a firm shutdown? When does this occur
in terms of where demand is located relative to the cost curves?
5. What are the four market structures and what are their characteristics? Which
markets are hard to enter? In which markets do firms have pricing power?
6. Draw a graph comparing artificial monopoly to a competitive market assuming
each has the same economics of scale (same size tools/factories). Which market
structure would produce more? Which market structure would charge more?
7. Your textbook argues that usually monopoly is considered a social bad, but there
are exceptions when society may benefit from having a monopoly. What two
examples are given for when monopoly could be considered beneficial?
8. Why is perfect competition assumed to be the best market situation in most
cases? Draw a graph showing the long run result of perfect competition and
explain why it benefits society.