Q: A firm’s economic profit is calculated as:

$$ \text{Economic Profit} = \text{Total Revenue} - (\text{Explicit Costs} + \text{Implicit Costs}) $$

Question 1

Which of the following best describes the law of diminishing returns in the context of a bakery hiring more workers in the short run, while keeping the number of ovens fixed?

Accepted Answer

Each additional worker will eventually contribute less to total output than the previous worker.

Question 2

A firm’s economic profit is calculated as:

Accepted Answer

$$ 	ext{Economic Profit} = 	ext{Total Revenue} - (	ext{Explicit Costs} + 	ext{Implicit Costs}) $$

Question 3

Which of the following is an example of an implicit cost for a small business owner?

Accepted Answer

The salary the owner could have earned working elsewhere.

Question 4

Suppose a factory’s total cost function in the short run is $$ TC = 500 + 20Q $$, where $$ Q  is $$the quantity of output. What is the total fixed cost (TFC)?

Accepted Answer

$$ 500 $$

Question 5

If the marginal product (MP) of the fifth worker is less than the average product (AP) of the first four workers, what will happen to the average product when the fifth worker is hired?

Accepted Answer

The average product will decrease.

Question 6

Which of the following statements about short-run cost curves is correct?

Accepted Answer

The marginal cost (MC) curve intersects the average total cost (ATC) and average variable cost (AVC) curves at their minimum points.

Question 7

A firm is producing at a level of output where average total cost (ATC) is at its minimum. What does this imply about marginal cost (MC) at this output?

Accepted Answer

MC equals ATC at its minimum point.

Question 8

Which of the following is NOT a type of firm organization listed in the study materials?

Accepted Answer

A cooperative bank

Question 9

If a firm’s total revenue is $$ 10,000 $$, explicit costs are $$ 7,000 $$, and implicit costs are $$ 2,000 $$, what is the firm’s economic profit?

Accepted Answer

$$ 1,000 $$

Question 10

Which of the following best describes the difference between financial capital and physical capital?

Accepted Answer

Financial capital refers to funds used by firms, while physical capital refers to tangible assets like machinery and buildings.

Question 11

A firm’s production function is given by $$ Q = f(L, K) . In $$the short run, which of the following is true?

Accepted Answer

At least one input (such as $$ K ) is $$fixed.

Question 12

Which of the following is an example of an intermediate product for a car manufacturer?

Accepted Answer

Steel purchased from another firm to make car bodies.

Question 13

If a firm increases the price it pays for a variable input (like wages), what happens to its short-run cost curves?

Accepted Answer

The AVC, ATC, and MC curves all shift upward.

Question 14

Which of the following is true about the relationship between marginal product (MP) and average product (AP)?

Accepted Answer

MP intersects AP at AP’s maximum point.

Question 15

A firm’s capacity is defined as:

Accepted Answer

The level of output at which short-run average total cost is minimized.

Question 16

Which of the following is a correct statement about the short run in production?

Accepted Answer

At least one factor of production is fixed.

Question 17

If a firm’s total cost increases from $$ 1,000  to$$ $$ 1,200 $$ when output increases from 50 to 55 units, what is the marginal cost (MC) of the 5 additional units?

Accepted Answer

$$ MC = \frac{1,200 - 1,000}{55 - 50} = 40 $$

Question 18

Which of the following is NOT considered an explicit cost?

Accepted Answer

The owner’s foregone salary from another job.

Question 19

Which of the following best describes a multinational enterprise (MNE)?

Accepted Answer

A firm that has operations in more than one country.

Question 20

If a firm’s total product (TP) increases from 100 to 120 units when the number of workers increases from 4 to 5, what is the marginal product (MP) of the fifth worker?

Accepted Answer

$$ MP = 120 - 100 = 20 $$

Producers in the Short Run: Organization, Financing, and Production in Microeconomics

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