Q: A firm in the short run has total cost $$C = 100 + 5Q + Q^2$. What is the marginal cost (MC) when Q = 3$?

$$MC = 5 + 2Q = 5 + 2 \times 3 = 11$$

Question 1

Suppose a consumer's income increases, and as a result, the quantity demanded for good X decreases. Which of the following best describes good X?

Accepted Answer

Good X is an inferior good.

Question 2

A firm’s production function is given by $$Q = L$$^{0.5}$$K^{0.5}$. If both labor (L) and capital (K) are doubled, what happens to output (Q)?

Accepted Answer

Output exactly doubles, indicating constant returns to scale.

Question 3

Which of the following best describes the substitution effect when the price of good X falls?

Accepted Answer

The consumer buys more of good X because it is now relatively cheaper compared to other goods.

Question 4

A firm in the short run has total cost $$C = 100 + 5Q + Q^2$. What is the marginal cost (MC) when Q = 3$?

Accepted Answer

$$MC = 5 + 2Q = 5 + 2 	imes 3 = 11$$

Question 5

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

Accepted Answer

Products are differentiated.

Question 6

If a firm’s total revenue is $$TR = P 	imes Q$$ and total cost is $$TC = 200 + 10Q$$, what is the profit-maximizing output if the market price $$P = 30$$?

Accepted Answer

Set $$MR = MC$$: $$MR = 30$$, $$MC = 10. $$The profit-maximizing output is not determined by this information alone.

Question 7

Which of the following best describes the difference between economic profit and accounting profit?

Accepted Answer

Economic profit includes both explicit and implicit costs, while accounting profit includes only explicit costs.

Question 8

Suppose the cost function is $$C = wL + rK. If $$the wage rate $$w$$ increases, what happens to the isocost line?

Accepted Answer

The isocost line becomes steeper.

Question 9

A firm’s marginal product of labor (MPL) is 20 and marginal product of capital (MPK) is 10. If the wage rate $$w = 5$$ and the rental rate of capital $$r = 2$$, is the firm minimizing costs?

Accepted Answer

$$\frac{MPL}{w} = \frac{MPK}{r}$$, so $$\frac{20}{5} = \frac{10}{2}$$; the firm is minimizing costs.

Question 10

If a firm experiences economies of scale, what happens to average total cost (ATC) as output increases?

Accepted Answer

ATC decreases as output increases.

Question 11

Which of the following best describes the Engel curve?

Accepted Answer

It shows the relationship between a consumer’s income and the quantity demanded of a good.

Question 12

A competitive firm faces a market price below its average variable cost (AVC) in the short run. According to the shut-down rule, what should the firm do?

Accepted Answer

Shut down immediately to minimize losses.

Question 13

If the marginal rate of technical substitution (MRTS) between labor and capital is $$-w/r$$, what does this imply about the cost-minimizing input combination?

Accepted Answer

The firm should choose inputs such that $$MRTS = -w/r.$$

Question 14

Suppose a firm’s average total cost (ATC) is minimized at $$Q = 100$$ units. If the firm produces 200 units, what can be inferred about returns to scale?

Accepted Answer

The firm is experiencing diseconomies of scale.

Question 15

Which of the following best describes the residual demand curve for a competitive firm?

Accepted Answer

It is the market demand curve minus the supply of all other firms at each price.

Question 16

If a firm’s total cost is $$C = 50 + 2Q$$, what is the average fixed cost (AFC) when $$Q = 10$$?

Accepted Answer

$$AFC = \frac{50}{10} = 5$$

Question 17

Which of the following is true about the long-run market supply curve in a perfectly competitive industry with constant costs?

Accepted Answer

It is perfectly elastic (horizontal).

Question 18

A firm’s profit is given by $$\pi = TR - TC. If$$ $$TR = 500$$ and $$TC = 600$$, what is the firm’s profit?

Accepted Answer

$$\pi = -100$$

Question 19

If a firm is producing where $$P = MC = ATC in $$the long run, what does this imply about the firm’s profit?

Accepted Answer

The firm is earning zero economic profit.

Question 20

Which of the following best describes 'learning by doing'?

Accepted Answer

Firms reduce costs as cumulative output increases due to improved efficiency.

Microeconomics Study Guide: Production, Costs, and Competitive Markets (Chapters 5–8)

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