Principles Of Micro Economics Set 3 MCQs

Q1 | Mannheim defines ________as the sum of those methods by which a societytries to influence human behavior to maintain a given order.

social control
constitution
policing
democracy

Answer: social control

Q2 | Implicit costs are:

equal to total fixed costs.
comprised entirely of variable costs.
payments" for self-employed resources.
always greater in the short run than in the long run.

Answer: payments" for self-employed resources.

Q3 | Which would be an implicit cost for a firm? The cost:

of worker wages and salaries for the firm.
paid for leasing a building for the firm.
paid for production supplies for the firm.
of wages foregone by the owner of the firm.

Answer: of wages foregone by the owner of the firm.

Q4 | If a firm's revenues just cover all its opportunity costs, then:

normal profit is zero.
economic profit is zero.
total revenues equal its explicit costs.
total revenues equal its implicit costs.

Answer: economic profit is zero.

Q5 | Suppose a firm sells its product at a price lower than the opportunity cost of theinputs used to produce it. Which is true?

the firm will earn accounting and economic profits.
the firm will face accounting and economic losses.
the firm will face an accounting loss, but earn economic profits.
the firm may earn accounting profits, but will face economic losses.

Answer: the firm may earn accounting profits, but will face economic losses.

Q6 | Suppose that a firm produces 200,000 units a year and sells them all for Rs.10each. The explicit costs of production are Rs.1,500,000 and the implicit costs of production are Rs. 300,000. The firm has an accounting profit of:

rs. 500,000 and an economic profit of rs. 200,000.
rs. 400,000 and an economic profit of rs. 200,000.
rs. 300,000 and an economic profit of rs. 400,000.
rs. 200,000 and an economic profit of rs. 500,000.

Answer: rs. 500,000 and an economic profit of rs. 200,000.

Q7 | The short run is a time period in which:

all resources are fixed.
the level of output is fixed.
the size of the production plant is variable.
some resources are fixed and others are variable.

Answer: some resources are fixed and others are variable.

Q8 | The law of diminishing returns only applies in cases where:

there is increasing scarcity of factors of production.
the price of extra units of a factor is increasing.
there is at least one fixed factor of production.
capital is a variable input.

Answer: there is at least one fixed factor of production.

Q9 | The marginal product of labor curve shows the change in total productresulting from:

one-unit increase in the quantity of a particular resource used, letting other resources vary.
one-unit increase in the quantity of a particular resource used, holding constant other resources.
change in the cost of a variable resource.
change in the cost of a fixed resource.

Answer: one-unit increase in the quantity of a particular resource used, holding constant other resources.

Q10 | When the total product curve is falling, the:

marginal product of labor is zero.
marginal product of labor is negative.
average product of labor is increasing.
average product of labor must be negative

Answer: marginal product of labor is negative.

Q11 | When marginal product reaches its maximum, what can be said of totalproduct?

total product must be at its maximum
total product starts to decline even if marginal product is positive
total product is increasing if marginal product is still positive
total product levels off

Answer: total product is increasing if marginal product is still positive

Q12 | Variable costs are:

sunk costs.
multiplied by fixed costs.
costs that change with the level of production.
defined as the change in total cost resulting from the production of an additional unit of output.

Answer: costs that change with the level of production.

Q13 | Which is not a fixed cost?

monthly rent of rs. 1,000 contractually specified in a one-year lease
an insurance premium of rs. 50 per year, paid last month
an attorney\s retainer of rs. 50,000 per year
a worker\s wage of rs. 15 per hour

Answer: a worker\s wage of rs. 15 per hour

Q14 | If you know that with 8 units of output, average fixed cost is Rs. 12.50 andaverage variable cost is Rs. 81.25, then total cost at this output level is:

rs. 93.75.
rs. 97.78.
rs. 750.
rs. 880.

Answer: rs. 750.

Q15 | With fixed costs of Rs. 400, a firm has average total costs of Rs. 3 and averagevariable costs of Rs. 2.50. Its output is:

200 units.
400 units.
800 units.
1,600 units.

Answer: 800 units.

Q16 | The reason the marginal cost curve eventually increases as output increases forthe typical firm is because:

of diseconomies of scale.
of minimum efficient scale.
of the law of diminishing returns.
normal profit exceeds economic profit.

Answer: of the law of diminishing returns.

Q17 | If the short-run average variable costs of production for a firm are rising, thenthis indicates that:

average total costs are at a maximum.
average fixed costs are constant.
marginal costs are above average variable costs.
average variable costs are below average fixed costs.

Answer: marginal costs are above average variable costs.

Q18 | If a more efficient technology was discovered by a firm, there would be:

an upward shift in the avc curve.
an upward shift in the afc curve.
a downward shift in the afc curve.
a downward shift in the mc curve.

Answer: a downward shift in the mc curve.

Q19 | A firm encountering economies of scale over some range of output will have a:

rising long-run average cost curve.
falling long-run average cost curve.
constant long-run average cost curve.
rising, then falling, then rising long-run average cost curve.

Answer: falling long-run average cost curve.

Q20 | If all resources used in the production of a product are increased by 20 percent andoutput increases by 20 percent, then there must be:

economies of scale.
diseconomies of scale.
constant returns to scale.
increasing average total costs.

Answer: constant returns to scale.

Q21 | Which of the following statements best describes the general form of a production function: (i) It is a purely technological relationship between quantities of input and quantities of output. (ii) It represents the technology of an organisation, sector of an economy.iii) Prices of inputs or of the output do not enter into the production function. (iv) It is a flow concept describing the transformation of inputs into output per unitof time.

(i),(ii) and (iv)
(i) and (ii)
(i) and (iv)
all of the above

Answer: all of the above

Q22 | Which of the following statements describes the presence of diminishingreturns. Holding at least one factor constant …....

the marginal product of a factor is positive and rising.
the marginal product of a factor is positive but falling.
the marginal product of a factor is falling and negative.
the marginal product of a factor is constant.

Answer: the marginal product of a factor is positive but falling.

Q23 | Which of the following statements describes increasing returns to scale:

doubling the inputs used leads to double the output.
increasing the inputs by 50% leads to a 25% increase in output.
increasing inputs by 1/4 leads to an increase in output of 1/3.
none of the above.

Answer: increasing inputs by 1/4 leads to an increase in output of 1/3.

Q24 | Economies of scale exist if:

as the amount of capital increases, the cost of producing per unit rises
as the amount of capital increases, the cost of producing per unit falls
as the amount of capital increases, the marginal cost rises
as the amount of capital increases, the marginal physical product falls

Answer: as the amount of capital increases, the cost of producing per unit falls

Q25 | Whenever marginal product is declining with increasing use of an input,

total product is declining as input increases.
average product is declining as input use increases
marginal product is greater than average product
total product is increasing at a decreasing rate as input use increases.

Answer: total product is increasing at a decreasing rate as input use increases.