1. Explain the difference between the meaning of short run and long run. Suppose

you have a small family run restaurant. Classify the following resources as fixed

or variable in the short run: the restaurant parking lot, the wait staff (waiters and

waitresses), fresh fruit and vegetables, the kitchen oven.

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. Will an entrepreneur stay in business in the long run if they are receiving positive

accounting profits and negative economic profits or will they exit the industry?

Suppose the entrepreneur is receiving zero economic profits, will they stay in

business, why or why not?

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. 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.

6. What creates monopoly?

7. 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?

8. Usually, a monopoly is considered a social bad, but there are exceptions when

society may benefit from having a monopoly. What examples are given for when

monopoly could be considered beneficial?

9. Using your notes and the book, examine each of the barriers to entry and explain

which are artificial or natural. If the monopoly is considered a social bad, what

can the government do to protect us?

10. Is monopolistic competition a monopoly market or a competitive market? List at

least four of the ways firms can differentiate a product (also called nonprice

competition). Then give an example for each.

11. Draw and explain the prisoner's dilemma model. What key concept does the

model show?