Q1.

In the short run, a firm experiences diminishing marginal returns when:​

A. Total product decreases as more inputs are added​
B. Marginal product falls but remains positive​
C. Average product begins to decline before marginal product​
D. Marginal product becomes negative

Q2. Which of the following best explains why average fixed cost always decreases as output
increases?​
A. Law of diminishing marginal returns​
B. Spreading effect of fixed costs​
C. Increasing marginal costs​
D. Constant returns to scale

Q3. A firm’s marginal cost curve intersects its average total cost curve at:​
A. The lowest point of average total cost​
B. The highest point of average total cost​
C. The shutdown point​
D. The breakeven point only

Q4. If marginal product is increasing, then:​

A. Marginal cost must be falling​
B. Average variable cost must be rising​
C. Total cost is constant​
D. Average fixed cost must be rising

Q5. A perfectly competitive firm will shut down in the short run when:​
A. Price = marginal cost​
B. Price < average variable cost​
C. Price < average total cost​
D. Price < marginal cost

Q6. A firm in long-run equilibrium in a perfectly competitive industry earns:​

A. Positive economic profits​
B. Negative economic profits​
C. Zero economic profits​
D. Accounting losses
Q7. Which cost curve is not U-shaped?​
A. Marginal cost​
B. Average variable cost​
C. Average fixed cost​
D. Average total cost

Q8. In the short run, which of the following costs must always be paid, even if the firm
produces no output?​
A. Marginal cost​
B. Variable cost​
C. Fixed cost​
D. Opportunity cost

Q9. Diseconomies of scale occur when:​

A. Average costs decrease as output expands​
B. Average costs increase as output expands​
C. Marginal cost decreases as output increases​
D. Firms are at minimum efficient scale

Q10. A firm produces 200 units of output at a total cost of $1,200. If its fixed cost is $400,
what is its average variable cost?​
A. $2​
B. $4​
C. $6​
D. $10

Q11. The relationship between marginal product and marginal cost is:​
A. Inverse​
B. Direct​
C. Unrelated​
D. Equal

Q12. Which of the following must be true at the profit-maximizing level of output for a
perfectly competitive firm?​
A. MR = ATC​
B. MR = MC​
C. MC = ATC​
D. MR > AVC
Q13. If a firm’s total revenue is less than its total variable cost, the firm should:​
A. Continue producing in the short run​
B. Shut down immediately​
C. Increase output until profits are positive​
D. Decrease fixed costs

Q14. In the long run, perfectly competitive firms produce at the output level where:​
A. P = MR = MC = minimum ATC​
B. P = MC > minimum ATC​
C. P > MC = minimum AVC​
D. MR = MC = maximum ATC

Q15. The minimum efficient scale (MES) is defined as:​

A. The smallest output at which long-run average total cost is minimized​
B. The largest output before diseconomies of scale begin​
C. The profit-maximizing level of output in the short run​
D. The output where MR = MC

Q16. A firm with rising marginal cost and falling marginal product is experiencing:​
A. Increasing returns to scale​
B. Constant returns to scale​
C. Diminishing marginal returns​
D. Diseconomies of scale

Q17. Which statement is true for a firm earning positive economic profit in the short run?​
A. New firms will enter, driving price down in the long run​
B. Firms will exit, raising price in the long run​
C. Industry supply curve will shift leftward​
D. Economic profit will persist in the long run

Q18. Which cost is irrelevant for a firm deciding whether to shut down in the short run?​
A. Average variable cost​
B. Average fixed cost​
C. Marginal cost​
D. Opportunity cost

Q19. In perfect competition, the firm’s demand curve is:​

A. Perfectly elastic​
B. Perfectly inelastic​
C. Downward-sloping​
D. Identical to its ATC curve

Q20. If the long-run average total cost curve is U-shaped, this implies:​
A. Economies of scale, constant returns, and diseconomies of scale exist​
B. Only economies of scale exist​
C. Only diseconomies of scale exist​
D. Costs fall indefinitely as output expands

Q21. When a firm’s average total cost is above the market price but average variable cost is
below the market price, the firm should:​
A. Shut down immediately​
B. Produce at a loss in the short run​
C. Raise prices to cover costs​
D. Exit the market in the short run

Q22. In the short run, which cost curves intersect at their minimum points?​
A. MC and AVC, and MC and ATC​
B. MC and AFC, and MC and AVC​
C. AVC and ATC, and ATC and AFC​
D. MC and AFC, and MC and ATC

Q23. The long-run supply curve of a perfectly competitive constant-cost industry is:​
A. Upward sloping​
B. Downward sloping​
C. Perfectly elastic​
D. Perfectly inelastic

Q24. In a decreasing-cost industry, as firms enter:​

A. Input prices rise​
B. Long-run industry supply curve slopes upward​
C. Long-run industry supply curve slopes downward​
D. Firms experience diseconomies of scale

Q25. Which of the following is a characteristic of perfect competition?​

A. Firms are price makers​
B. Products are homogeneous​
C. There are barriers to entry​
D. Firms engage in advertising

Q26. If MR > MC at a given output, the firm should:​

A. Reduce output​
B. Increase output​
C. Shut down​
D. Stay at current output

Q27. A firm’s accounting profit is always:​

A. Greater than or equal to economic profit​
B. Less than economic profit​
C. Equal to zero in the long run​
D. Negative if total revenue < total cost

Q28. If price equals minimum ATC, the firm is:​

A. Breaking even​
B. Making positive economic profit​
C. Making negative economic profit​
D. Shutting down

Q29. Which of the following best describes constant returns to scale?​

A. Doubling inputs more than doubles output​
B. Doubling inputs doubles output​
C. Doubling inputs less than doubles output​
D. Output increases without additional inputs

Q30. At the shutdown point, which of the following is true?​

A. P = AVC = MC​
B. P = ATC = MC​
C. P = MR = minimum ATC​
D. P = AFC

Q31. Which curve represents the firm’s supply curve in the short run?​
A. The portion of the MC curve above AVC​
B. The portion of the ATC curve above AFC​
C. The entire MC curve​
D. The entire ATC curve
Q32. An upward-sloping long-run industry supply curve is most likely in a(n):​
A. Constant-cost industry​
B. Decreasing-cost industry​
C. Increasing-cost industry​
D. Perfectly elastic industry

Q33. When a firm exits an industry:​

A. Market supply increases​
B. Market supply decreases​
C. Market demand decreases​
D. Market equilibrium price falls

Q34. Which is true of marginal cost?​

A. It cuts both AVC and ATC at their minimum points​
B. It lies below AVC in the short run​
C. It never intersects ATC​
D. It equals AFC at equilibrium

Q35. If total cost rises from $100 to $150 when output increases from 10 to 12 units, what is
marginal cost per unit?​
A. $10​
B. $20​
C. $25​
D. $50

Q36. At the point of productive efficiency, a firm in perfect competition produces where:​
A. P = MC​
B. P = minimum ATC​
C. P > ATC​
D. MR > MC

Q37. If firms in a perfectly competitive market are making losses in the short run, in the long
run:​
A. Supply decreases, price rises, and losses are eliminated​
B. Supply increases, price falls, and losses remain​
C. Demand decreases, price falls, and losses are eliminated​
D. Firms remain in the market despite losses
Q38. Which of the following explains why the MC curve is U-shaped?​
A. Law of diminishing marginal returns​
B. Economies of scale​
C. Diseconomies of scale​
D. The spreading effect

Q39. In the long run, economic profit is eliminated in perfect competition due to:​
A. Market power​
B. Entry and exit of firms​
C. Government regulation​
D. Law of diminishing returns

Q40. Which of the following best defines allocative efficiency in a perfectly competitive
market?​
A. P = MC​
B. P = minimum ATC​
C. P = MR​
D. MC = ATC