Q: A firm’s average variable cost (AVC) is $$5, and its average fixed cost (AFC) is 3 at an $$output of 100 units. What is the firm’s total cost (TC)?

$$ TC = (AVC + AFC) \times Q = (5 + 3) \times 100 = 800 $$

Question 1

A firm in a perfectly competitive market faces the following cost structure: Total Fixed Cost (TFC) = $$100, Total Variable Cost (TVC) = 200 at an $$output of 50 units. What is the Average Total Cost (ATC) at this output level?

Accepted Answer

$$ ATC = \frac{TFC + TVC}{Q} = \frac{100 + 200}{50} = 6 $$

Question 2

Which of the following best describes the law of diminishing marginal product?

Accepted Answer

As more units of a variable input are added to fixed inputs, the additional output produced by each new unit eventually decreases.

Question 3

Suppose a monopolist faces the following demand curve: $$ P = 100 - 2Q . $$What is the marginal revenue (MR) function for this monopolist?

Accepted Answer

$$ MR = 100 - 4Q $$

Question 4

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Firms can influence the market price by changing their output.

Question 5

If a firm’s marginal cost (MC) is below its average total cost (ATC), what happens to ATC as output increases?

Accepted Answer

ATC decreases as output increases.

Question 6

A monopolist maximizes profit by producing the quantity where:

Accepted Answer

$$ MR = MC $$

Question 7

Which of the following best explains why a monopoly can earn long-run economic profits, while a perfectly competitive firm cannot?

Accepted Answer

Barriers to entry prevent other firms from entering the market.

Question 8

If the price of a product in a perfectly competitive market is $$10, and a firm’s marginal cost of producing the next unit is 12$$, what should the firm do to maximize profit?

Accepted Answer

Reduce output, since $$ MC \u003e P $$

Question 9

Which of the following is included in the calculation of Gross Domestic Product (GDP) using the expenditure approach?

Accepted Answer

Government spending on goods and services

Question 10

Suppose a firm’s total cost (TC) is given by $$ TC = 50 + 4Q $$, where $$ Q  is $$output. What is the firm’s marginal cost (MC)?

Accepted Answer

$$ MC = 4 $$

Question 11

Which of the following statements about income inequality is correct?

Accepted Answer

Income inequality refers to the unequal distribution of income among participants in an economy.

Question 12

If a firm in a perfectly competitive market is earning economic profits, what will likely happen in the long run?

Accepted Answer

New firms will enter, driving profits to zero.

Question 13

Which of the following is NOT a component of GDP when using the expenditure approach?

Accepted Answer

Transfer payments

Question 14

A firm’s average variable cost (AVC) is $$5, and its average fixed cost (AFC) is 3 at an $$output of 100 units. What is the firm’s total cost (TC)?

Accepted Answer

$$ TC = (AVC + AFC) 	imes Q = (5 + 3) 	imes 100 = 800 $$

Question 15

Which of the following best describes the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured using current prices, while real GDP is adjusted for inflation.

Question 16

If a monopolist faces a downward-sloping demand curve, what happens to marginal revenue as output increases?

Accepted Answer

Marginal revenue decreases as output increases.

Question 17

Suppose the government increases spending on infrastructure. Which component of GDP does this affect?

Accepted Answer

Government spending (G)

Question 18

Which of the following is a reason why the average total cost (ATC) curve is U-shaped?

Accepted Answer

ATC initially decreases due to spreading fixed costs, then increases due to rising variable costs.

Question 19

If a firm’s total revenue (TR) is $$500 and its total cost (TC) is 400$$, what is its economic profit?

Accepted Answer

$$ Economic\ Profit = TR - TC = 500 - 400 = 100 $$

Question 20

Which of the following is an example of a barrier to entry that can lead to monopoly power?

Accepted Answer

Government patents

Microeconomics Study Guide: Technology, Costs, Market Structures, GDP, and Income Inequality

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