Question 1

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

Accepted Answer

Accounting profit is always higher than economic profit because it ignores opportunity costs.

Question 2

Suppose a firm has total revenue of $$\10$$,000$$, explicit costs of $$\$$6,000$$, and implicit costs of $$\2$$,000$. What is the firm's economic profit?

Accepted Answer

$$\2$$,000$

Question 3

A bakery pays $$\1$$,000$$ per month for rent (fixed cost) and $$\$$2$$ per loaf of bread in ingredients and labor (variable cost). If the bakery produces 500 loaves in a month, what is the total cost?

Accepted Answer

$$\2$$,500$

Question 4

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

Accepted Answer

The owner's foregone salary from another job

Question 5

If the marginal cost (MC) of producing an additional unit is less than the average total cost (ATC), what happens to the ATC as output increases?

Accepted Answer

ATC decreases

Question 6

A firm in a perfectly competitive market faces a market price of $$\10$ per unit. Its marginal cost (MC) at 100 units is $$\$$8$$, and at 101 units is $$\12$. What is the profit-maximizing level of output?

Accepted Answer

100 units

Question 7

Which of the following best illustrates the law of diminishing marginal product?

Accepted Answer

Adding more workers to a factory increases total output, but each additional worker adds less output than the previous one.

Question 8

In the short run, which of the following costs is considered a sunk cost for a firm?

Accepted Answer

Fixed cost of machinery already purchased

Question 9

Suppose a firm’s total cost (TC) is given by $$TC = 100 + 5Q$$, where $$Q is $$the quantity produced. What is the marginal cost (MC)?

Accepted Answer

$$MC = 5$$

Question 10

A perfectly competitive firm should shut down in the short run if:

Accepted Answer

Price is less than average variable cost (AVC)

Question 11

In the long run, what happens to economic profit in a perfectly competitive market?

Accepted Answer

Firms earn zero economic profit

Question 12

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

Accepted Answer

Significant barriers to entry

Question 13

If a firm’s production function is $$Q = F(K, L)$$, what does this equation represent?

Accepted Answer

The relationship between inputs (capital and labor) and output

Question 14

A firm is currently producing at a point where $$MC = MR$$ and $$P \u003e ATC. $$What can be said about the firm's profit?

Accepted Answer

The firm is making a positive economic profit.

Question 15

Which of the following best describes economies of scale?

Accepted Answer

As a firm increases all inputs, average total cost decreases.

Question 16

Suppose a firm’s average total cost (ATC) is minimized at 200 units of output. In the long run, what will be the market price in a perfectly competitive industry?

Accepted Answer

Equal to the minimum ATC

Question 17

Which of the following is a real-world example of a market that is NOT perfectly competitive?

Accepted Answer

Toilet paper

Question 18

A firm’s total fixed cost (TFC) is $$\300$ and it produces 50 units. What is the average fixed cost (AFC)?

Accepted Answer

$$AFC = \6$

Question 19

If a firm ignores sunk costs when making a decision, it is:

Accepted Answer

Acting rationally according to economic theory

Question 20

Which of the following is true about monopolies, according to the study materials?

Accepted Answer

There is only one seller and many buyers.

Production, Costs, and Market Structures: Profit Maximization in Microeconomics

Study Guide - Practice Questions

Study Guide - Flashcards