#1
Which of the following is a characteristic of perfect competition?
Many buyers and many sellers
ExplanationPerfect competition involves numerous buyers and sellers.
#2
Which of the following is not a fixed cost?
Raw materials
ExplanationRaw materials are typically considered variable costs, not fixed costs.
#3
Which of the following is an example of a variable input in the short run?
Labor
ExplanationLabor is a variable input in the short run.
#4
What is the concept that indicates the percentage change in quantity supplied in response to a percentage change in price?
Elasticity of supply
ExplanationElasticity of supply measures the responsiveness of quantity supplied to price changes.
#5
What is the formula to calculate total cost?
Total Cost = Total Fixed Cost + Total Variable Cost
ExplanationTotal cost is the sum of total fixed cost and total variable cost.
#6
What does the law of diminishing returns state?
As production increases, total cost increases at an increasing rate.
ExplanationThe law of diminishing returns implies increasing costs with expanding production.
#7
Which cost is also known as avoidable cost?
Variable cost
ExplanationVariable cost is the cost that can be avoided or changed.
#8
What does economies of scale refer to?
When the long-run average total cost decreases as output increases.
ExplanationEconomies of scale denote cost reductions with increasing production levels.
#9
What is the formula to calculate average variable cost?
Average Variable Cost = Total Variable Cost / Quantity
ExplanationAverage variable cost is determined by dividing total variable cost by quantity.
#10
What is the relationship between marginal cost and average total cost when average total cost is at its minimum?
Marginal cost equals average total cost.
ExplanationAt the minimum average total cost, marginal cost equals it.
#11
In the short run, a firm should shut down if:
Variable costs exceed total revenue.
ExplanationShutting down is advisable if variable costs surpass total revenue in the short run.
#12
What is the relationship between marginal cost and average variable cost?
When marginal cost is less than average variable cost, average variable cost increases.
ExplanationIf marginal cost is lower than average variable cost, the latter will rise.
#13
What does the long-run average total cost curve look like under constant returns to scale?
U-shaped
ExplanationUnder constant returns to scale, the long-run average total cost curve takes a U-shaped form.
#14
What does the short-run average total cost curve initially exhibit?
Decreasing returns to scale
ExplanationInitially, the short-run average total cost curve shows decreasing returns to scale.
#15
In the long run, a firm should exit the market if:
Average total cost exceeds marginal revenue.
ExplanationExiting the market is advisable if average total cost surpasses marginal revenue in the long run.