Question 1

Suppose a firm in a perfectly competitive market faces a market price of $$10 per unit. The firm's marginal cost (MC) for producing the 20th unit is 12$$, and for the 19th unit is $9. What should the firm do to maximize profit?

Accepted Answer

Reduce production to 19 units.

Question 2

If a consumer's income increases and the demand for ramen noodles decreases, what type of good is ramen noodles?

Accepted Answer

An inferior good

Question 3

Which of the following best describes the role of prices in a free market economy?

Accepted Answer

Prices allocate scarce resources and signal information to buyers and sellers.

Question 4

A firm has total revenue of $$500, explicit costs of 300$$, and implicit costs of $100. What is the economic profit?

Accepted Answer

$100

Question 5

If the marginal product of labor for the second worker is calculated as follows: 1 worker produces 20 units, 2 workers produce 35 units. What is the marginal product of the second worker?

Accepted Answer

$$15$$

Question 6

Which of the following is true about fixed costs?

Accepted Answer

They remain constant regardless of output.

Question 7

If a technological advancement shifts the production possibilities frontier (PPF) outward, what does this indicate?

Accepted Answer

The economy's productive capacity has increased.

Question 8

Suppose the price of a product increases by 10% and the quantity demanded decreases by 5%. What can be said about the price elasticity of demand?

Accepted Answer

Demand is inelastic.

Question 9

In the short run, what distinguishes it from the long run in terms of production?

Accepted Answer

At least one input is fixed.

Question 10

If a firm’s marginal cost is less than marginal revenue, what should the firm do to maximize profit?

Accepted Answer

Increase output.

Question 11

What is the opportunity cost of spending your entire budget on movie tickets instead of books?

Accepted Answer

The books you could have purchased.

Question 12

Which of the following best describes diminishing marginal returns?

Accepted Answer

Each additional unit of input increases output by a smaller amount.

Question 13

If a firm in a perfectly competitive market is earning positive economic profit in the short run, what is likely to happen in the long run?

Accepted Answer

New firms will enter, increasing industry supply and driving profit to zero.

Question 14

Which of the following is minimized by the optimal method of production?

Accepted Answer

Total cost

Question 15

If there are many close substitutes for a good, what can be said about the price elasticity of demand for that good?

Accepted Answer

Demand is likely to be elastic.

Question 16

A firm’s total cost is $$1,000, its fixed cost is 400$$, and it produces 100 units. What is its average variable cost?

Accepted Answer

$$6$$

Question 17

Which of the following best describes the demand curve facing a firm in a perfectly competitive market?

Accepted Answer

Perfectly elastic (horizontal)

Question 18

If the marginal revenue product (MRP) of a worker increases due to higher productivity, what is likely to happen to the demand for that worker?

Accepted Answer

Demand for the worker will increase.

Question 19

Which of the following is an advantage of unregulated markets?

Accepted Answer

They allocate resources efficiently through price signals.

Question 20

If a firm’s total revenue is $$2,000, its total cost is 2$$,500, and its fixed cost is $800, should the firm shut down in the short run?

Accepted Answer

No, if total revenue covers variable costs.

Microeconomics Core Concepts: Study Guide

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