Sample Multiple-Choice Questions
1. True statements about the theory of the firm in the short run and long run include which of the following? I. All input costs are fixed in the short run.
II. All input costs are variable in the long run.
III. At least one input price is fixed in the short
(A) I only
(B) II only
(C) III only
(D) I and II only
(E) II and III only
3. Whichofthefollowingstatementsabouta firm’s production function are true? I. When total product is at its maximum,
marginal product is zero.
II. When total product rises, marginal product
III. When marginal product is greater than
average product, average product is rising.
product, average product is falling.
(A) I and II only
(B) II and III only
(C) II and IV only
(D) I, III and IV only
(E) I, II, III and IV
MP AP ABCDE
2. Onthegraphabove,theonsetofdiminishing marginal returns occurs beyond (A) Point A. (B) Point B. (C) Point C. (D) Point D. (E) Point E. 4. Accordingtographabove,ifthefirmisproduc- ing any quantity greater than Q2, the firm is experiencing (A) economies of scale.
(B) minimum efficient scale. (C) diseconomies of scale. (D) constant returns. (E) increasing returns.
Advanced Placement Economics Microeconomics: Student Activities © National Council on Economic Education, New York, N.Y. 203 OUTPUT
5. Foraperfectlycompetitivefirm,ifthemarket price is $8 then (A) marginal revenue is greater than $8. (B) marginal revenue is less than $8. (C) marginal revenue is equal to $8. (D) average revenue is greater than $8. (E) average revenue is less than $8. 6. A firm’s short-run marginal cost curve will eventually increase because of (A) more efficient production. (B) economies of scale.
(C) diseconomies of scale.
(D) diminishing marginal returns. (E) increasing marginal returns. 7. Assumethatintheshortrunattheprofit-maxi- mizing output, the price is lower than average variable cost. The perfectly competitive firm should (A) increase its price. (B) decrease its price. (C) increase its output. (D) decrease its output. (E) shut down. 8. Assumethataperfectlycompetitivefirmis operating where marginal revenue is greater than marginal costs. To increase profits, the firm should (A) increase production. (B) decrease production. (C) increase price. (D) decrease price.
(E) do nothing.
SAMPLE QUESTIONS (continued)
9. Iftheaveragevariablecostofproducingfive units of a product is $100 and the average vari- able cost of producing six units is $125, then the marginal cost of producing the sixth unit is (A) $125. (B) $2. (C) $250. (D) $350. (E) $750.
￼P4 P3 P2 P1 P
￼Q Q1 Q2 Q3 Q4
￼￼￼￼￼Use the graph above to answer questions 10, 11 and 12. 10. If the firm is in short-run equilibrium at a price of P4, a perfectly competitive firm will maximize profits by producing at which of the following levels of output? (A) Q (B) Q1 (C) Q2 (D) Q3 (E) Q4
11. At which price will this perfectly competitive firm make an economic profit? (A) P (B) P1 (C) P2
(D) P3 (E) P4
12. Whichprice-quantitycombinationrepresents long-run equilibrium for this perfectly com- petitive firm? (A) PointA (B) PointB (C) PointC (D) Point D (E) Point E
￼￼204 Advanced Placement Economics Microeconomics: Student Activities © National Council on Economic Education, New York, N.Y. COST/REVENUES
SAMPLE QUESTIONS (continued)
ATC AVC PD
13. Accordingtothegraphabove,ifthefirmis producing at Q, the firm is (A) losing money because the firm is operating at the shutdown point. (B) losing money because the price does not cover average fixed cost. (C) making profits because...