Question 1

Which of the following best describes the difference between explicit and implicit costs for a firm?

Accepted Answer

Explicit costs involve actual monetary payments for resources, while implicit costs represent the opportunity costs of using resources owned by the firm.

Question 2

A firm’s economic profit is zero. What does this imply about the firm’s accounting profit?

Accepted Answer

Accounting profit is equal to implicit costs.

Question 3

Suppose a firm’s total revenue is $$500,000, explicit costs are 350$$,000, and implicit costs are $100,000. What is the firm’s economic profit?

Accepted Answer

$50,000

Question 4

Which of the following is NOT a characteristic of the short run in production?

Accepted Answer

All inputs can be varied.

Question 5

The law of diminishing returns states that:

Accepted Answer

As more units of a variable input are added to fixed inputs, the marginal product of the variable input eventually decreases.

Question 6

If the marginal product (MP) of labour is greater than the average product (AP) of labour, what happens to the AP as more labour is added?

Accepted Answer

AP increases.

Question 7

Which equation correctly represents the relationship between total cost (TC), total fixed cost (TFC), and total variable cost (TVC)?

Accepted Answer

$$TC = TFC + TVC$$

Question 8

A firm’s marginal cost (MC) curve intersects its average total cost (ATC) curve at:

Accepted Answer

The minimum point of the ATC curve.

Question 9

If the price of a variable input increases, what happens to the firm’s cost curves in the short run?

Accepted Answer

Both ATC and MC curves shift upward.

Question 10

Which of the following best describes the concept of capacity in the context of short-run production?

Accepted Answer

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

Question 11

A digital product has a large initial fixed cost and near-zero marginal cost. What happens to average total cost (ATC) as output increases?

Accepted Answer

ATC decreases due to spreading fixed costs over more units.

Question 12

Which of the following is an example of an implicit cost?

Accepted Answer

The opportunity cost of the owner’s time.

Question 13

Suppose a firm’s total fixed cost (TFC) is $$100, total variable cost (TVC) is 400$$, and output (Q) is 10 units. What is the average total cost (ATC)?

Accepted Answer

$$ATC = \frac{TFC + TVC}{Q} = \frac{100 + 400}{10} = 50$$

Question 14

Which organizational form is most likely to be a multinational enterprise (MNE)?

Accepted Answer

Corporation

Question 15

If a firm is operating at an output less than its capacity, it is said to have:

Accepted Answer

Excess capacity

Question 16

Which of the following best explains why the average variable cost (AVC) curve is U-shaped?

Accepted Answer

Increasing marginal product at low output and diminishing marginal product at high output.

Question 17

A firm’s marginal cost (MC) is given by $$MC = \frac{\Delta TC}{\Delta Q}. If $$total cost increases from $$200 to 250 $$when output increases from 10 to 12 units, what is the marginal cost per unit?

Accepted Answer

$$MC = \frac{250 - 200}{12 - 10} = 25$$

Question 18

Which of the following is a key assumption economists make about firm behaviour?

Accepted Answer

Firms are profit-maximizers and act as a single, consistent decision-making unit.

Question 19

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

Accepted Answer

Each additional filter on a smokestack reduces pollution by less than the previous filter.

Producers in the Short Run: Production, Costs, and Profit in Microeconomics

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