Question 1

Which of the following best describes the law of diminishing returns in the context of production?

Accepted Answer

As more units of a variable input are added to fixed inputs, the additional output from each new unit will eventually decrease.

Question 2

A firm’s average total cost (ATC) is minimized when:

Accepted Answer

Marginal cost (MC) equals average total cost (ATC).

Question 3

Suppose a factory’s total cost of producing 100 units is $$1,000, and the total cost of producing 101 units is 1$$,020. What is the marginal cost of the 101st unit?

Accepted Answer

$20

Question 4

Which of the following equations correctly represents average variable cost (AVC)?

Accepted Answer

$$AVC = \frac{VC}{Q}$$

Question 5

In the long run, which of the following statements is true about costs?

Accepted Answer

All costs are variable.

Question 6

A perfectly competitive firm is a price taker because:

Accepted Answer

It cannot influence the market price due to the presence of many buyers and sellers.

Question 7

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

Accepted Answer

New firms will enter the market, driving profits to zero.

Question 8

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

Accepted Answer

Firms are price makers.

Question 9

A monopolist maximizes profit by producing the quantity at which:

Accepted Answer

$$MR = MC$$

Question 10

Which of the following best explains why a monopolist’s marginal revenue (MR) is less than the price (P) for all units except the first?

Accepted Answer

To sell additional units, the monopolist must lower the price on all units sold.

Question 11

Which of the following is an example of price discrimination?

Accepted Answer

A movie theater charging lower prices for seniors and students.

Question 12

Suppose a monopolist’s total cost (TC) of producing 10 units is $$500, and the total revenue (TR) from selling 10 units is 800. $$What is the monopolist’s profit?

Accepted Answer

$300

Question 13

Which of the following best describes deadweight loss due to monopoly?

Accepted Answer

It is the loss of total surplus that occurs because the monopolist produces less than the socially optimal output.

Question 14

If a firm’s average fixed cost (AFC) is $10 and it produces 20 units, what is its total fixed cost (TFC)?

Accepted Answer

$200

Question 15

Which of the following equations correctly represents marginal cost (MC)?

Accepted Answer

$$MC = \frac{\Delta TC}{\Delta Q}$$

Question 16

A firm experiences economies of scale when:

Accepted Answer

Long run average total cost decreases as output increases.

Question 17

In a perfectly competitive market, the firm’s short run supply curve is:

Accepted Answer

The portion of its marginal cost curve above average variable cost.

Question 18

Which of the following is a real-world example of a natural monopoly?

Accepted Answer

A local electricity provider with a network of power lines.

Question 19

If a firm in a perfectly competitive market is producing where $$P \u003c AVC$$, what should the firm do in the short run?

Accepted Answer

Shut down production immediately.

Question 20

Suppose a firm’s total cost (TC) is given by $$TC = 100 + 5Q + 2Q^2$. What is the marginal cost (MC) when Q = 10$?

Accepted Answer

$$MC = 5 + 4Q = 5 + 4 	imes 10 = 45$$

Cost and Output Determination in Microeconomics

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