#1
Which of the following is a characteristic of a perfectly competitive market?
Firms are price takers
ExplanationPerfectly competitive firms accept market prices as given.
#2
In the short run, a firm's total cost is composed of both fixed costs and:
Variable costs
ExplanationShort-run total cost includes fixed and variable costs.
#3
Which of the following is NOT a characteristic of a perfectly competitive market?
Firms have market power
ExplanationPerfect competition implies no market power for firms.
#4
What is the relationship between average product and marginal product?
Average product is less than marginal product
ExplanationAverage product lags behind marginal product.
#5
Which of the following is NOT a factor of production?
Profit
ExplanationProfit is an outcome, not a factor of production.
#6
What does the production function represent?
The relationship between inputs and outputs
ExplanationProduction function illustrates the input-output connection.
#7
The Law of Diminishing Marginal Returns states that as more units of a variable input are added to fixed inputs, eventually:
Marginal product decreases
ExplanationAdding variable input to fixed inputs leads to diminishing returns.
#8
In the long run, a firm can adjust all of its inputs. Therefore, in the long run:
All costs are variable costs
ExplanationLong-run flexibility allows all costs to be variable.
#9
Economies of scale occur when:
Average total cost decreases as output increases
ExplanationCost efficiency increases with higher output levels in economies of scale.
#10
What is the shape of the long-run average total cost curve when economies of scale are present?
Downward sloping
ExplanationLong-run average total cost curve slopes downward in economies of scale.
#11
Which of the following is true about a firm operating at the minimum of its average total cost curve?
It is maximizing its profit
ExplanationProfit maximization occurs at the minimum of average total cost.
#12
What is the relationship between marginal cost and average total cost when marginal cost is below average total cost?
Marginal cost is less than average total cost
ExplanationMarginal cost below average total cost implies cost reduction.
#13
The slope of the production function measures the:
Marginal product of the variable input
ExplanationProduction function slope represents variable input's marginal product.
#14
What is the term used to describe the situation where a firm's average total cost decreases as it produces more output?
Economies of scale
ExplanationCost reduction per unit with increased production defines economies of scale.
#15
When does a firm experience diseconomies of scale?
When long-run average total cost increases as output increases
ExplanationDiseconomies of scale involve increased cost per unit with higher output.
#16
When marginal cost is less than average total cost, what happens to average total cost?
It decreases.
ExplanationAverage total cost declines when marginal cost is below it.
#17
What is the shape of the marginal cost curve when a firm experiences diminishing marginal returns?
Upward sloping
ExplanationMarginal cost increases with diminishing marginal returns, resulting in an upward-sloping curve.