Question 1

Which of the following best describes the production function in microeconomics?

Accepted Answer

It describes the technological relationship between the inputs a firm uses and the output it produces, represented as $$Q = f(L, K).$$

Question 2

A firm’s economic profit is calculated as:

Accepted Answer

Economic profit = Revenues – (Explicit costs + Implicit costs)

Question 3

If a firm’s total revenue is $$2000, explicit costs are 1160$$, and implicit costs are $265, what is the firm’s economic profit?

Accepted Answer

$$575$$

Question 4

Which of the following is NOT an example of an implicit cost?

Accepted Answer

Depreciation of equipment

Question 5

In the short run, which of the following statements is true?

Accepted Answer

Some factors of production are fixed while others are variable.

Question 6

The law of diminishing returns states that:

Accepted Answer

Each successive unit of a variable factor adds less and less to total output when combined with a fixed factor.

Question 7

If the marginal product (MP) of labour is above the average product (AP), what happens to the AP curve?

Accepted Answer

The AP curve slopes upward.

Question 8

Which formula correctly represents average product (AP) of labour?

Accepted Answer

$$AP = TP \div L$$

Question 9

Marginal cost (MC) is defined as:

Accepted Answer

The increase in total cost resulting from increasing output by one unit, $$MC = \frac{\Delta TC}{\Delta Q}$$

Question 10

Which cost curve is U-shaped due to initially declining and then rising average total costs as output increases?

Accepted Answer

Average total cost (ATC) curve

Question 11

A firm is said to have excess capacity when:

Accepted Answer

It produces at an output less than the point of minimum average total cost.

Question 12

If the price of a variable factor increases, what happens to the ATC and MC curves?

Accepted Answer

Both ATC and MC curves shift upward.

Question 13

For digital products with large initial costs but near zero marginal costs, which statement is true?

Accepted Answer

Marginal cost (MC) is constant and equal to average variable cost (AVC).

Question 14

Which equation correctly represents total cost in the short run?

Accepted Answer

$$TC = TFC + TVC$$

Question 15

A firm’s capacity is defined as:

Accepted Answer

The largest output that can be produced without encountering rising average costs per unit.

Question 16

Which of the following is a real-world example of diminishing returns?

Accepted Answer

Adding more filters to pollution control leads to diminishing marginal returns in pollution reduction.

Question 17

If a firm’s average product (AP) reaches its maximum, what happens to the average variable cost (AVC)?

Accepted Answer

AVC is at its minimum.

Question 18

Which of the following statements about marginal cost (MC) is correct?

Accepted Answer

MC reaches its minimum when marginal product (MP) reaches its maximum.

Question 19

If the price of a fixed factor increases, what happens to the firm’s cost curves?

Accepted Answer

The ATC curve shifts upward but the MC curve does not change.

Question 20

Which of the following best describes the short-run average total cost (ATC) curve for a digital product with high fixed costs and near-zero marginal costs?

Accepted Answer

ATC declines as output increases due to spreading fixed costs.

Producers in the Short Run: Production, Costs, and Profits

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