Free Microeconomics MCQs with Answers

• A. Revenue - fixed costs
• B. Fixed cost + revenue
• C. Revenue - sales
• D. Revenue - total costs

Explanation: Profit is the surplus left after subtracting all costs of production from revenue, so fixed and variable costs are both included in total…

• A. Do not exist in monopoly
• B. Cannot exist in oligopoly
• C. Do not exist in monopolistic competition
• D. Do exist in perfect competition

Explanation: Monopolistic competition permits relatively free entry and exit, so significant barriers to entry are absent in the standard model.

• A. No profit is being made
• B. Total revenue equals total cost
• C. Profits are maximised
• D. Producing another unit would increase profits

Explanation: Profit rises while the revenue from an extra unit exceeds its cost and falls when that cost is higher, so the maximum occurs where…

• A. covers fixed costs
• B. covers variable costs
• C. covers total costs
• D. covers revenue

Explanation: In the short run, fixed costs must be paid even if output is zero, so production should continue when revenue covers variable costs.

• A. They will aim to leave the industry
• B. Other firms will join the industry
• C. The revenue equal total costs
• D. No profit is made is accounting terms

Explanation: Normal profit means total revenue covers both explicit and implicit costs, so economic profit is zero.

• A. Reduce output
• B. Increase output
• C. Leave output where it is:
• D. Increase costs

Explanation: When marginal revenue is below marginal cost, the last units add more to cost than to revenue.

• A. Total cost is falling
• B. Total cost is increasing at a falling rate
• C. Total cost is falling at a falling rate
• D. Total cost is increasing at an increasing rate

Explanation: A positive marginal cost means each extra unit increases total cost, while falling marginal cost means those increases become…

• A. The Minimum Efficient Scale
• B. The Minimum External Scale
• C. The Maximum External Scale
• D. The Maximum Effective Scale

Explanation: The minimum efficient scale is the lowest output level at which long-run average cost is minimised, or has reached its lowest sustainable…

• A. An increase in demand
• B. More government spending
• C. Better training of employees
• D. Productive inefficiency

Explanation: An outward production possibility frontier represents greater productive capacity.

• A. Constantly increasing
• B. Fixed at any moment
• C. Constantly decreasing
• D. Able to be transferred easily between industries

Explanation: At a particular moment, the economy's available land, labour, capital and enterprise are limited, so resources are treated as fixed in…

• A. It is not utilizing its resources fully
• B. It is being productively efficient
• C. It is a mixed economy
• D. It is trading other economies

Explanation: Trade allows an economy to consume a combination of goods beyond its own production possibility frontier by exchanging goods with other…

• A. Market forces of supply and demand
• B. The government
• C. The law
• D. The public Sector

Explanation: In a free market, consumer demand and producer supply interact through prices to determine which products are made and in what quantities.

• A. An inward shift of the production possibility frontier
• B. A movement along the production possibility frontier
• C. An outward shift of the production possibility frontier
• D. A decision by the government to produce inside the production possibility frontier

Explanation: Economic growth increases an economy’s productive capacity, so it is represented by an outward shift of the production possibility…

• A. Technological change has made it possible for many industries to become more competitive
• B. Because few real natural monopolies exist there is rarely a reason for government regulation
• C. Many instances of government regulation have succeeded in reducing competition in industries where competition may be beneficial
• D. All of the above

Explanation: All three statements support deregulation: technology can increase competition, genuine natural monopolies are uncommon, and regulation…

• A. Total revenue - quantity
• B. Total revenue / quantity sold
• C. Total quantity sold quantity sold
• D. Total revenue / total cost

Explanation: Since total revenue equals price multiplied by quantity sold, dividing total revenue by quantity gives the price per unit.

• A. Fixed costs
• B. Variable costs
• C. Total costs
• D. Revenue

Explanation: In the long run, all inputs and therefore all costs are variable, so a firm must cover total costs to continue producing.

• A. The firm is making a loss and will shutdown in the short term
• B. The firm is making a profile
• C. The firm is making a loss but will continue to produce in the short term
• D. The firm is making a loss and is making a negative contribution to fixed costs

Explanation: When price is below average cost but above average variable cost, the firm incurs a loss but covers all variable costs and contributes…

• A. The total product will fall
• B. The average product will fall
• C. Average variable cost will fall
• D. Total revenue will fall

Explanation: When marginal product is below average product, the new unit pulls the average down, just as a score below an average lowers that average.

• A. is derived from the average fixed costs
• B. Converges with the average cost as output increases
• C. Equals the total costs divided by the output
• D. Equals revenue minus profits

Explanation: Average cost equals average variable cost plus average fixed cost. As output increases, average fixed cost approaches zero, so the average…

• A. Total costs fall
• B. Marginal costs increase
• C. Average costs fall
• D. Revenue falls

Explanation: Internal economies of scale reduce a firm's long-run average cost as its scale of production expands.