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1 Firms, Production, and Costs Online Quiz Questions

Use this free practice quiz with 20 questions to review 1 Firms, Production, and Costs, test your knowledge, and prepare for your next test or exam.

20 questions

True or false

1 point

True or false: A production function describes the greatest output a firm can produce from given quantities of inputs using its available technology.

A
True
B
False

True or false

1 point

True or false: In economics, the short run is defined as a period in which at least one input is fixed, rather than as a specific number of days or years.

A
True
B
False

Written response

1 point

A bakery keeps its ovens fixed and hires one additional worker. What is the economic term for the additional output produced by that worker, holding other inputs fixed?

Fill in the blank

1 point

Complete the short-run cost identity: $TC =$ .

Choose one

1 point

A bakery increases the number of loaves it produces and buys more ingredients as a result. How is this ingredient spending classified?

A
The lease payment due during the production period
B
Spending on ingredients used to make each loaf
C
The owner’s opportunity cost of working at the bakery
D
A payment that cannot be recovered or avoided

Choose all

1 point

Select all correct statements about long-run scale and cost.

A
Economies of scale occur when long-run average cost falls as output expands.
B
Constant returns to scale occur when long-run average cost rises as output expands.
C
Diseconomies of scale occur when long-run average cost rises as output expands.
D
Economies of scale mean that every input must remain fixed as output expands.

Fill in the blank

1 point

Complete the identity for average total cost: $ATC =$ .

Written response

1 point

A firm earns revenue of $1,000, pays $600 in explicit costs, and incurs $500 in implicit opportunity costs. What is its economic profit in dollars?

Choose one

1 point

A perfectly competitive firm takes the market price as given. Which condition describes its profit-maximizing output choice?

A
Choose output where average total cost equals price, then set marginal revenue from demand.
B
Choose output where marginal revenue is below price, then charge marginal cost.
C
Choose output where price equals marginal cost.
D
Choose output where fixed cost equals variable cost.

Choose all

1 point

Select all correct statements about a perfectly competitive firm’s short-run shutdown decision.

A
If price is above average variable cost but below average total cost, producing covers variable costs and some fixed costs.
B
If price is below average variable cost, producing minimizes the short-run loss.
C
If price is below average variable cost, shutting down minimizes the short-run loss while unavoidable fixed costs remain.
D
At a price equal to average variable cost, the firm is indifferent between producing and shutting down in the basic model.

Choose one

1 point

A monopolist is choosing its profit-maximizing output and price. Which decision process is correct?

A
Choose output where price equals marginal cost, then use marginal revenue to set price.
B
Choose output where marginal revenue equals marginal cost, then use demand to determine price.
C
Choose output where average total cost is minimized, then charge marginal revenue.
D
Choose output where price equals average variable cost, then use total cost to determine demand.

Open ended

1 point

A firm earns revenue of $2,000, pays $1,200 in explicit costs, and gives up $900 in income the owner could have earned elsewhere. Calculate its accounting profit and economic profit, and explain why the two results differ.

Choose one

1 point

Which statement correctly distinguishes a temporary shutdown from exiting an industry?

A
A temporary shutdown means the firm has permanently left the industry.
B
Exiting is a short-run decision that leaves the firm’s input choices fixed.
C
A temporary shutdown stops production for now, while exit means leaving the industry.
D
A firm can temporarily shut down only if all its fixed costs are recoverable.

Choose one

1 point

A bakery can hire additional workers, but the number of ovens cannot be changed during the production period. Which description applies to this production period?

A
It is the long run because the bakery can hire more workers.
B
It is the short run because the number of ovens is fixed.
C
It is the long run because output can change.
D
It is neither, because labor is a variable input.

Choose one

1 point

A workshop has fixed equipment. The fourth worker adds 8 units of output, while the fifth worker adds only 5 units. Which concept best describes this change?

A
The law of increasing total cost
B
Constant returns to scale
C
The law of diminishing marginal returns
D
Economies of scale

True or false

1 point

A firm must pay a lease fee this month whether it produces or shuts down, and it cannot recover the payment. Under the definitions in the material, the fee is both a fixed cost and a sunk cost.

A
True
B
False

Written response

1 point

A manufacturer expands output, and its long-run average cost falls. What is this pattern called?

Written response

1 point

A firm produces 30 items and has total variable cost of $180. What is its average variable cost in dollars per item?

Choose one

1 point

A firm earns revenue of $100,000, pays $70,000 in explicit costs, and gives up $20,000 in income its owner could have earned elsewhere. What is the firm's economic profit?

A
$30,000
B
$10,000
C
$20,000
D
$100,000

Choose one

1 point

At a firm's current output, marginal cost is below average variable cost. If marginal cost remains below average variable cost as the firm produces a little more, what happens to average variable cost?

A
AVC falls.
B
AVC rises.
C
AVC stays unchanged.
D
AVC becomes equal to fixed cost.

1 Firms, Production, and Costs Online Quiz Questions

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