Question 1

Which of the following is NOT one of the two basic assumptions we make about firms in microeconomics?

Accepted Answer

Firms have unlimited resources.

Question 2

A firm is considered a price taker when:

Accepted Answer

It must accept the market price as given and cannot influence it.

Question 3

Why do many small firms in a market tend to be price takers?

Accepted Answer

Because no single firm can influence the market price due to their small size.

Question 4

A production function describes how firms transform:

Accepted Answer

Inputs into outputs.

Question 5

Given the production function $$Q = K$$^{0.5}$$L^{0.5}$$, $$L = 100$$, $$K = 100$$, $$p = 100$$, $$p_L = 5$$, $$p_K = 15$, what is the firm's accounting profit?

Accepted Answer

$$8500$$

Question 6

A firm's accounting profit is given by:

Accepted Answer

Total Revenue $$-$$ Total Explicit Costs

Question 7

Economic profit is calculated as:

Accepted Answer

Accounting Profit $$-$$ Implicit Costs

Question 8

The Marginal Product of Labour (MPL) is defined as:

Accepted Answer

The change in total output resulting from a one-unit increase in labour, holding other inputs constant.

Question 9

If $$MPL = 4$$ and $$p_L = 10$$, what is the Marginal Cost (MC) of a single unit?

Accepted Answer

$$MC = \frac{p_L}{MPL} = \frac{10}{4} = 2.5$$

Question 10

Which of the following best describes Fixed Costs (FC)?

Accepted Answer

Costs that remain constant regardless of output.

Question 11

Total Cost (TC) is given by which formula?

Accepted Answer

$$TC = FC + VC$$

Question 12

Why does the Marginal Cost (MC) curve intersect the Average Variable Cost (AVC) and Average Total Cost (ATC) curves at their minimum points?

Accepted Answer

Because when MC is below AVC or ATC, it pulls the average down, and when MC is above, it pulls the average up.

Question 13

Profit maximization for a firm occurs where:

Accepted Answer

$$MR = MC$$

Question 14

If $$MR \u003e MC$$, how should a profit-maximizing firm adjust its output?

Accepted Answer

Increase output.

Question 15

A firm will shut down in the short run if:

Accepted Answer

Economic profits are negative and total revenue is less than variable costs.

Question 16

A firm's short-run supply curve is equal to:

Accepted Answer

The portion of its marginal cost curve above average variable cost.

Question 17

If the wage rate increases, what happens to a firm's short-run output (Q) and profits?

Accepted Answer

Output decreases and profits decrease.

Question 18

If firm productivity increases, what happens to short-run output (Q) and profits?

Accepted Answer

Output increases and profits increase.

Question 19

If the price of the final product increases, what happens to a firm's short-run output (Q) and profits?

Accepted Answer

Both output and profits increase.

Short-Run Firms: Cost, Profit, and Supply in Microeconomics

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