(Q1, 2, 3, 4, 5, 6, 7, 8, 9, 10: MCQs - 1M each)

Q1. Sometimes a firm will continue to operate even if that firm incurs short-run negative profits
(losses). Which of the following characterizes this situation?
(A) P = MC = AVC
(B) P=MC where P > AC but P < AVC
(C) P=MC where P > AVC but P < AC
(D) P = MC = AC

Q2. If the price of an input falls, a firm would increase the use of that input for two reasons:
(A) The input is now more productive, and the firm can substitute this input for other relatively more
expensive inputs.
(B) The input is now more productive, and overall production costs are now lower, meaning a firm
may choose to increase production.
(C) Overall production costs are now lower and the firm will have more of other inputs to use with
the one in question.
(D) Overall production costs are now lower and the firm can substitute this input for other
relatively more expensive inputs.

Q3. A profit-maximizing firm will never hire that quantity of a factor of production for which that
factor has an increasing marginal productivity because
(A) it would not be maximizing profits.
(B) it would not be maximizing the productivity of labour.
(C) it would not be maximizing output.
(D) it would not be minimizing costs.

Q4. It is usually assumed that a perfectly competitive firm's supply curve is given by its marginal cost
curve. In order for this to be true, which of the following additional assumptions are necessary:
I. That the firm seek to maximize profits.
II. That the marginal cost curve be positively sloped.
III. That price exceeds average variable cost.
IV. That price exceeds average total cost.
(A) I and II only.
(B) all the statements.
(C) I, II and III, but not IV.
(D) I and III but not II and IV.
Q5. Economies of scope
(A) means the rotation of the long-run total cost curve in a downward direction.
(B) are higher the more specialized a firm is in production.
(C) are a production characteristic in which the total cost of producing given quantities of two
goods in the same firm is less than the total cost of producing those quantities in two single
product firm.
(D) are related to the average cost of producing a good when you double the scale of output.

Q6. A short-run market supply curve in a competitive industry is derived by

(A) multiplying the quantity supplied by each identical firm in the industry times the number of
firms at each relevant price.
(B) not usually upward sloping.
(C) adding market supply and market demand at each relevant price.
(D) multiplying the quantity supplied by each differentiated firm in the industry times the number
of firms at each relevant price.

Q7. A perfectly competitive firm’s short-run supply curve is determined by the equation:
(A) P = SMC where P is greater than or equal to short run AVC. Otherwise, supply is zero.
(B) P= AC where P is greater than or equal to short run MC. Otherwise, supply is zero.
(C) P=AVC where P is greater than or equal to short run MC. Otherwise, supply is zero.
(D) P=SMC where P is greater than or equal to short run AC. Otherwise, supply is zero.

Q8. The experience curve (also called the learning curve) shows the relationship between
(A) average total cost and output.
(B) average variable cost and cumulative production volume.
(C) average variable cost and returns to scale.
(D) output and marginal cost.

Q9. If price is equal to short-run average variable cost, the firm is at the point known as
(A) the shutdown point.
(B) the profit maximizing point.
(C) the break-even point.
(D) the revenue maximizing point.

Q10. The short-run market supply curve is derived by ________ supplied of the individual firm
supply curves.
(A) horizontally summing the prices and quantities
(B) horizontally summing the quantities
(C) vertically summing the quantities
(D) vertically summing the prices and quantities