#1
What is the law of demand?
As the price of a good increases, the quantity demanded decreases.
ExplanationInverse relationship between price and quantity demanded.
#2
Which of the following is NOT a determinant of demand?
Price of the good itself
ExplanationPrice of the good is a determinant of demand.
#3
What is the formula for calculating total revenue?
Total Revenue = Price × Quantity
ExplanationPrice multiplied by quantity sold.
#4
In the long run, which factor can a firm adjust to achieve optimal production?
Size of the factory
ExplanationAdjustable factor for optimal production.
#5
What is the main characteristic of a perfectly competitive market?
Homogeneous products
ExplanationUniform goods across competitors.
#6
What is a price ceiling?
A legal maximum price for a good or service.
ExplanationGovernment-set maximum price.
#7
Which of the following is a characteristic of a perfectly competitive market?
Firms can freely enter or exit the market.
ExplanationEase of entry and exit for firms.
#8
What is the formula for calculating average variable cost (AVC)?
AVC = Total Variable Cost / Quantity
ExplanationVariable cost per unit of output.
#9
What is marginal cost?
The additional cost of producing one more unit of a good.
ExplanationCost of producing an additional unit.
#10
What is the difference between explicit and implicit costs?
Explicit costs are monetary payments while implicit costs are opportunity costs.
ExplanationExplicit costs involve money; implicit costs are opportunity costs.
#11
What is the definition of economies of scale?
When long-run average total cost decreases as output increases.
ExplanationCost efficiency with increased production.
#12
What is the main difference between perfect competition and monopolistic competition?
Nature of products
ExplanationProduct differentiation.
#13
What does the short-run average variable cost curve represent?
The average variable cost of production at different levels of output.
ExplanationCost of variable inputs per unit of output.
#14
What is the profit-maximizing rule for a perfectly competitive firm in the short run?
Produce where marginal revenue equals marginal cost.
ExplanationEquating additional revenue with additional cost.
#15
What is the primary characteristic of a natural monopoly?
Economies of scale are present over the entire range of market demand.
ExplanationCost efficiency throughout demand range.
#16
What is the difference between accounting profit and economic profit?
Accounting profit includes implicit costs while economic profit does not.
ExplanationAccounting includes all costs, economic focuses on opportunity costs.
#17
What is the definition of a sunk cost?
A cost that has already been incurred and cannot be recovered.
ExplanationCost irrecoverable once spent.
#18
What is the formula for calculating marginal revenue (MR) in a perfectly competitive market?
MR = Change in Total Revenue / Change in Quantity
ExplanationRate of change in total revenue per unit change in quantity.
#19
What is the primary assumption of the law of diminishing marginal returns?
Factors of production are fixed.
ExplanationAssumption of fixed inputs in production.
#20
What is the difference between explicit and implicit costs in economics?
Explicit costs involve monetary payments, while implicit costs do not.
ExplanationMonetary vs. opportunity costs.
#21
Which of the following is a characteristic of a monopoly market structure?
Barriers to entry
ExplanationRestricted entry to the market.
#22
What happens to a firm's profit when marginal revenue (MR) equals marginal cost (MC)?
Profit is maximized.
ExplanationOptimal profit point.
#23
What is the relationship between average total cost (ATC) and marginal cost (MC) when ATC is at its minimum?
ATC is equal to MC.
ExplanationMinimum ATC equals MC.
#24
What is the relationship between marginal cost (MC) and average variable cost (AVC) when MC is below AVC?
MC is decreasing.
ExplanationMC falls as AVC declines.
#25
What is the long-run supply curve for a perfectly competitive firm?
A horizontal line at the minimum point of the average total cost curve.
ExplanationHorizontal line at minimum ATC.