Free Microeconomics MCQs with Answers
1,742 Microeconomics MCQs from Economics, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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- A. It is efficient because the right amount of output is produced, but not efficient in that the output produced is produced at a cost above minimum average total cost
- B. It is efficient because entry is free and economic profits are eliminated in the long run.
- C. It is not efficient because too little output is produced and the output that is produced is produced at a cost above minimum average total cost
- D. It is not efficient because too little output is produced but is efficient in that the output produced is produced at minimum average total cost.
Explanation: Monopolistic competition produces less than the output that minimizes average total cost, creating excess capacity, and its price exceeds…
Correct answer: It is not efficient because too little output is produced and the output that is produced is produced at a cost above minimum average total cost- A. sells a fixed amount of output regardless of price.
- B. must raise price to sell more output
- C. can sell an infinite amount of output at the market-determined price
- D. must lower price to sell more output.
Explanation: A monopolistically competitive firm faces a downward-sloping demand curve because its product is differentiated from competitors'.
Correct answer: must lower price to sell more output.- A. by producing differentiated products
- B. because of barriers to exit from the industry
- C. by virtue of size alone
- D. because of barriers to entry into the industry
Explanation: Product differentiation gives each firm a somewhat distinct product, allowing it to raise price without losing every customer.
Correct answer: by producing differentiated products- A. produced less and charged a higher price
- B. produced more and charged a higher price
- C. produced more and charged a lower price
- D. produced less and charged a lower price.
Explanation: A monopolist restricts output and charges more than would prevail under competition.
Correct answer: produced more and charged a lower price- A. maximized its total revenue
- B. set price equal to its average cost
- C. equated marginal revenue and marginal cost
- D. maximized the difference between marginal revenue and marginal cost.
Explanation: Profit is maximized at the output where the additional revenue from one more unit equals the additional cost of producing it, so MR = MC.
Correct answer: equated marginal revenue and marginal cost- A. always equal to one.
- B. half as steep as the demand curve
- C. the same as the slope of the demand curve
- D. twice as steep as the demand curve
Explanation: For a straight-line demand curve, the marginal-revenue curve has the same intercept but twice the slope in absolute value, so it is twice…
Correct answer: twice as steep as the demand curve1207. Economic profits are ?
- A. the difference between total revenue and total costs.
- B. anything greater than the normal opportunity cost of investing
- C. the opportunity costs of all inputs
- D. a rate of profit that is just sufficient to keep owners and investors satisfied
Explanation: Economic profit is the return left after covering all opportunity costs, including the normal return needed to keep the investment in its…
Correct answer: anything greater than the normal opportunity cost of investing- A. Is the rate of return on investments over the interest rate on risk-free government bonds.
- B. is the rate that is just sufficient to keep owners or investors satisfied.
- C. is the difference between total revenue and total costs
- D. is zero in a perfectly competitive industry.
Explanation: Normal profit is the minimum return required to keep owners and investors in the business, including their opportunity costs.
Correct answer: is the rate that is just sufficient to keep owners or investors satisfied.- A. immediate run
- B. intermediate run
- C. long run
- D. short run
Explanation: The short run is the period in which firms cannot freely enter or leave an industry.
Correct answer: short run- A. there are many EU and government health controls on cosmetic products
- B. there are a very large number of firms in the industry
- C. firms spend a large amount of money on advertising
- D. profit margins are very high for both producers and retailers
Explanation: Heavy advertising suggests that firms compete by creating or emphasizing product differences rather than selling an identical product at a…
Correct answer: firms spend a large amount of money on advertising- A. no longer influences the amount demand of the firm's product
- B. becomes a decision variable for the firm
- C. is guaranteed to be above a firm's average cost.
- D. is determined by the actions of other firms in the industry
Explanation: With market power, a firm faces a downward-sloping demand curve and can influence the price through its output decision.
Correct answer: becomes a decision variable for the firm1212. Market power is ?
- A. a firm's ability to monopolies a market completely.
- B. a firm's ability to raise price without losing all demand for its product
- C. a firm's ability to sell any amount of output it desires at the market-determined price.
- D. a firm's ability to charge any price it likes
Explanation: Market power means the ability to raise price without losing all buyers, because the firm faces a downward-sloping demand curve.
Correct answer: a firm's ability to raise price without losing all demand for its product- A. fixed costs exceed revenues.
- B. it is suffering a loss.
- C. variable costs exceed revenues
- D. total costs exceed revenues
Explanation: In the short run, a firm shuts down when revenue cannot cover variable costs, because fixed costs must be paid even when output is zero.
Correct answer: variable costs exceed revenues- A. £35
- B. £15
- C. £30
- D. £60
Explanation: Total revenue is £2 × 50 = £100, while total cost is £25 + £40 = £65. Economic profit is therefore £100 − £65 = £35.
Correct answer: £35- A. DTVC/Dq
- B. q/TVC
- C. Dq/DTVC
- D. TVC/q
Explanation: Average variable cost spreads total variable cost over the units produced, so AVC equals TVC divided by quantity, written as TVC/q.
Correct answer: TVC/q1216. A graph showing all the combinations capital and labor available for a given total cost is the ?
- A. expenditure set
- B. isocost line.
- C. budget constraint
- D. isoquant
Explanation: An isocost line shows combinations of capital and labour that can be purchased for the same total cost.
Correct answer: isocost line.- A. an indifference curves.
- B. an isoquant.
- C. an isocost line
- D. a production functions
Explanation: An isoquant connects different combinations of capital and labour that produce the same level of output.
Correct answer: an isoquant.- A. downward sloping to the right
- B. U-shaped
- C. Horizontal
- D. upward sloping to the right
Explanation: Economies of scale reduce long-run average cost as output expands, while diseconomies increase it beyond the efficient scale.
Correct answer: U-shaped- A. 160; 270
- B. 10; 30
- C. 10; 3.33
- D. 30; 10
Explanation: The marginal product of the third worker is 90 − 80 = 10. Average product with three workers is 90/3 = 30, giving 30 for average product…
Correct answer: 30; 10- A. decreasing average fixed costs.
- B. decreasing marginal costs.
- C. decreasing average variable costs.
- D. increasing marginal costs.
Explanation: With diminishing marginal returns, each additional unit of input produces less extra output.
Correct answer: increasing marginal costs.