All Free Economics MCQs with Answers

• A. price = average cost = marginal cost
• B. price = average cost = total cost
• C. price = marginal cost = total cost
• D. Total revenue = Total variable cost

Explanation: Long-run competitive equilibrium occurs where price equals marginal cost and average total cost at its minimum, so firms earn zero…

• A. A few firms dominate the industry
• B. Firms are price makers
• C. There are many buyers but few sellers
• D. There are many buyers and sellers

Explanation: Perfect competition has many buyers and sellers, with each firm too small to influence the market price.

• A. Price is greater than marginal cost
• B. price equals marginal cost
• C. price is less than marginal cost
• D. None of the above

Explanation: A competitive firm maximizes profit at the output where price, which equals marginal revenue, equals marginal cost.

• A. Horizontal
• B. vertical
• C. downward sloping
• D. elastic

Explanation: An individual competitive firm's demand curve is horizontal because it can sell any feasible quantity at the prevailing market price but…

• A. many buyers and sellers
• B. a standard product
• C. free entry and exit
• D. perfect information
• E. all of the above

Explanation: Perfect competition assumes many buyers and sellers, a standardized product, free entry and exit, and perfect information.

• A. is a price taker
• B. Producer different products
• C. Believes that can influence price
• D. Prevents the entry of competitors

Explanation: No individual buyer or seller is large enough to influence the market price in a competitive industry, so each accepts the prevailing…

• A. decreasing returns to scale
• B. The law of diminishing returns
• C. constant returns to scale
• D. an inefficient production technique

Explanation: When other inputs are fixed and additional units of one variable input eventually add less to output, the law of diminishing returns is…

• A. long run average cost is lowest
• B. marginal revenue equals output
• C. marginal revenue equals long run marginal cost
• D. marginal cost equals output

Explanation: A firm chooses its long-run profit-maximizing output where marginal revenue equals long-run marginal cost, provided production is…

• A. Efficient scale
• B. Average efficient scale
• C. Maximum efficient scale
• D. Minimum efficient scale

Explanation: Minimum efficient scale is the smallest output at which a firm fully exploits economies of scale and reaches the minimum long-run average…

• A. Short run marginal cost rises, output rises
• B. long run marginal cost rises, output rises
• C. Short run average cost rises, output rises
• D. long run average cost rises, output rises

Explanation: Decreasing returns to scale means that increasing all inputs causes output to rise by a smaller proportion, which is reflected by rising…

• A. output is maximized
• B. inputs are minimized
• C. there is no way to make a given output using less of one input and no more of the other inputs
• D. Costs are minimized

Explanation: Technical efficiency means producing a given output with no possibility of reducing one input without increasing another.

• A. Unique Selling Proposition
• B. Underlying Sales Proposition
• C. Unit Sales Point
• D. Under Sales Procedure

Explanation: USP means Unique Selling Proposition, the distinctive benefit or feature that makes a product stand out from competitors.

• A. an increase in the number of firms in the market but no increase in the price of the good
• B. an increase the price of the good and an increase in the number of firms in the market
• C. an increase the price of the good but no increase in the number of firms in the market
• D. no impact on either the price of the good or the number of firms in the market

Explanation: With perfectly elastic long-run supply, the market price remains fixed after demand increases.

• A. downward sloping
• B. perfectly inelastic
• C. upward sloping
• D. perfectly elastic

Explanation: Identical costs and readily available inputs imply a constant-cost industry: firms can enter without raising input prices or production…

• A. is always more elastic than the short-run market supply curve.
• B. is always perfectly elastic
• C. has the same elasticity as the short run market supply curve
• D. is always less elastic than the short-run market supply curve

Explanation: The long run permits firms to enter or leave and to adjust all inputs, so market supply normally responds more strongly to price changes…

• A. entire marginal cost curve
• B. upward-sloping portion of the average total cost curve
• C. portion of the marginal cost curve that lies above the average total cost curve
• D. upward-sloping portion of the average variable cost curve
• E. portion of the marginal cost curve that lies above the average variable cost curve.

Explanation: In the long run, a competitive firm supplies output along the rising part of its marginal-cost curve only when price covers average total…

• A. decreased production
• B. maintained production at the current level
• C. temporarily shut down.
• D. increased production

Explanation: When marginal revenue exceeds marginal cost, the extra unit adds more to revenue than to cost.

• A. total revenue divided by the quantity sold
• B. equal to the quantity of the good sold
• C. average revenue divided by the quantity sold
• D. equal to the price of the good sold

Explanation: A competitive firm is a price taker, so selling one additional unit adds exactly the market price to total revenue.

• A. electricity
• B. cable television
• C. cola
• D. milk
• E. All of these answers represent competitive markets

Explanation: Milk is produced by many relatively small sellers and is fairly homogeneous, making it closer to a competitive market than electricity…

• A. Price equals marginal revenue
• B. price is greater than marginal revenue
• C. price equals total revenue
• D. price equals total cost

Explanation: A perfectly competitive firm can sell any feasible quantity at the prevailing market price, so its marginal revenue from another unit…