All Free Economics MCQs with Answers

• A. Price is greater than marginal revenue
• B. Price is less than marginal revenue
• C. Price equals marginal revenue
• D. Price equals average fixed cost

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

• A. Average cost equals average revenue
• B. Marginal revenue equals marginal cost
• C. Price equals marginal cost in every case
• D. Total revenue equals total cost

Explanation: A monopolist maximizes profit by producing where marginal revenue equals marginal cost, provided the output is worthwhile to produce.

• A. The weather in unrelated markets
• B. The strategic decisions of rival firms
• C. The fixed costs of households
• D. The total population of the country

Explanation: An oligopoly has a small number of significant firms, so each firm must consider how rivals may respond to its price, output or…

• A. Marginal private cost equals marginal social cost
• B. Marginal social cost exceeds marginal private cost
• C. Marginal private benefit exceeds total benefit
• D. Marginal revenue equals average fixed cost

Explanation: Pollution is a negative externality, so marginal social cost includes both the firm's private cost and the external cost imposed on…

• A. The national inflation rate
• B. The country's overall unemployment rate
• C. The pricing decision of a wheat producer
• D. The long term growth of national income

Explanation: Microeconomics studies individual consumers, firms and particular markets.

• A. The price paid and the firm's total cost
• B. The maximum willingness to pay and the price paid
• C. The firm's revenue and its variable cost
• D. The quantity supplied and the quantity demanded

Explanation: Consumer surplus measures the benefit buyers receive when their willingness to pay exceeds the market price.

• A. Increases because the good earns more revenue
• B. Decreases because the consumer can buy fewer goods
• C. Remains fixed because nominal income is unchanged
• D. Increases because the substitution effect disappears

Explanation: A higher price reduces the quantity of goods that a fixed income can purchase, so real purchasing power falls.

• A. A shorter period for producers to adjust
• B. Fewer available production substitutes
• C. Greater spare production capacity
• D. A more fixed quantity of production inputs

Explanation: Spare capacity allows firms to expand output more easily when price rises, making supply more responsive.

• A. Rotates inward around one intercept
• B. Shifts outward parallel to itself
• C. Becomes vertical at the original income
• D. Shifts inward parallel to itself

Explanation: Higher income enables the consumer to buy more of both goods at unchanged prices.

• A. Total economic cost, including opportunity cost
• B. Accounting cost, excluding opportunity cost
• C. Fixed cost, excluding variable cost
• D. Marginal cost at the chosen output

Explanation: Economic profit subtracts both explicit costs and the opportunity cost of resources owned by the firm.

• A. Average total cost at every output level
• B. Average variable cost at its minimum point
• C. Marginal revenue at the profit-maximizing output
• D. Fixed cost per unit at the current output

Explanation: A firm continues producing in the short run if revenue covers average variable cost and contributes toward fixed cost.

• A. Sell an identical product at one uniform price
• B. Separate buyers and prevent profitable resale
• C. Produce where average cost is lowest
• D. Make all consumers have identical demand

Explanation: Price discrimination requires the seller to identify groups with different willingness to pay and limit resale between them.

• A. Every firm earns the same profit
• B. Each player's strategy is optimal given the others' strategies
• C. The government fixes the market price
• D. Total industry output reaches its maximum

Explanation: At a Nash equilibrium, no participant can improve its outcome by changing strategy alone while the other strategies remain unchanged.

• A. Rivalry and easy exclusion
• B. Non-rivalry and non-exclusion
• C. Rivalry and non-exclusion
• D. Non-rivalry and easy exclusion

Explanation: One person's use of a pure public good does not reduce its availability to others, and people cannot easily be excluded from using it.

• A. A surplus because sellers offer more units
• B. A shortage because buyers demand more units
• C. A higher equilibrium price through free adjustment
• D. No change because the ceiling affects only sellers

Explanation: A price ceiling below equilibrium keeps the legal price artificially low.

• A. Complementary goods
• B. Substitute goods
• C. Inferior goods
• D. Public goods

Explanation: Substitute goods satisfy similar wants, so a higher price for tea shifts consumers toward coffee.

• A. A normal good
• B. An inferior good
• C. A luxury good
• D. A complementary good

Explanation: Demand for an inferior good falls when income rises, because consumers shift toward preferred alternatives.

• A. The historical purchase price only
• B. The next-best use forgone
• C. The firm's total fixed cost
• D. The building's physical depreciation

Explanation: Opportunity cost is the value of the best alternative that is sacrificed.

• A. Rising
• B. Falling
• C. Constant at zero
• D. Equal to marginal revenue

Explanation: A marginal value below an average pulls the average downward, so average total cost falls.

• A. Market price increases
• B. Scale of production increases
• C. Variable cost decreases
• D. Profit margin increases

Explanation: Economies of scale mean that larger-scale production lowers long-run average cost.