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.
Last updated
1,742 questions · page 63 of 88
1241. Marginal revenue is ?
- A. the additional profit the firms earns when it sells an additional unit of output
- B. the difference between total revenue and total cost
- C. The ratio of total revenue to quantity.
- D. the added revenue that a firm takes in when it increases output by one additional unit.
Explanation: Marginal revenue is the extra revenue obtained from selling one additional unit of output.
Correct answer: the added revenue that a firm takes in when it increases output by one additional unit.- A. Dq/DTFC
- B. TFC - q
- C. TFC/q
- D. q/TFC
Explanation: Average fixed cost spreads total fixed cost over the units produced, so AFC equals total fixed cost divided by quantity, or TFC/q.
Correct answer: TFC/q- A. marginal rate of factor substitution
- B. marginal rate of substitution
- C. law of diminishing marginal returns.
- D. marginal rate of production
Explanation: The marginal rate of factor substitution measures how much capital can replace labour while output remains unchanged, along an isoquant.
Correct answer: marginal rate of factor substitution- A. slope up to the right
- B. are U-shaped
- C. slope down to the right
- D. slope down to the right and then level off.
Explanation: Empirical evidence often finds long-run cost curves falling initially because of economies of scale and then becoming nearly flat as scale…
Correct answer: slope down to the right and then level off.- A. average costs to remain constant
- B. average costs to decrease
- C. average costs to increase
- D. marginal costs to increase
Explanation: A 15% increase in every input producing a 15% increase in output indicates constant returns to scale.
Correct answer: average costs to remain constant- A. If TP is declining, then AP is negative
- B. If AP = MP, then total product is at a maximum.
- C. If AP exceeds MP then AP is falling
- D. If AP is at a maximum, then MP is also,
Explanation: When marginal product is below average product, the new unit pulls the average down, so AP is falling.
Correct answer: If AP exceeds MP then AP is falling- A. at least one fixed factor of production and firms neither leaving nor entering the industry.
- B. no variable inputs - that is, all of the factors of production are fixed
- C. all inputs being variable
- D. a period where the law of diminishing returns does not hold
Explanation: In the short run, at least one factor of production is fixed while other inputs may vary; firms also generally cannot freely enter or…
Correct answer: at least one fixed factor of production and firms neither leaving nor entering the industry.- A. The franchiser's fee that a restaurant must pay to the national restaurant chain
- B. The payroll taxes that are paid on employee wages.
- C. The monthly rent on office space that it leased for a year
- D. The interest payments made on loans.
Explanation: Payroll taxes are tied to employee wages, so they increase or decrease as the firm's employment bill changes and are therefore variable…
Correct answer: The payroll taxes that are paid on employee wages.- A. marginal revenue and marginal cost.
- B. total revenue and total cost
- C. total revenue and marginal cost
- D. marginal revenue and average cost
Explanation: Profit equals total revenue minus total cost, so a firm maximises profit by maximising this difference.
Correct answer: total revenue and total cost1250. Criticisms against the North American Free Trade Agreement include all of the following except ?
- A. wages in the United States will rise relative to Mexican wages
- B. American jobs will be lost to workers in Mexico
- C. The environment is not adequately protected by NAFTA
- D. None of the above
Explanation: Critics of NAFTA commonly argued that U.S. jobs would move to Mexico and that environmental safeguards were inadequate.
Correct answer: wages in the United States will rise relative to Mexican wages- A. relatively high; relatively large
- B. relatively high; relatively small
- C. relatively low ; relatively large
- D. relatively low ; relatively small
Explanation: A high initial tariff creates greater scope for trade creation when internal tariffs are removed, while a larger customs union offers more…
Correct answer: relatively high; relatively large- A. trade diversion effect
- B. increased monopoly power of firms
- C. decrease customs costs
- D. economy-of-scale effect
Explanation: Economic integration can enlarge the market, allowing firms to produce at a lower average cost through economies of scale.
Correct answer: economy-of-scale effect- A. trade creation
- B. trade diversion
- C. trade exclusion
- D. trade distortion
Explanation: Trade creation occurs when integration replaces costly domestic production with lower-cost imports from a member country, increasing trade…
Correct answer: trade creation- A. trade creation
- B. trade diversion
- C. trade exclusion
- D. trade distortion
Explanation: Trade diversion is the shift from a lower-cost nonmember supplier to a higher-cost member supplier because internal barriers are removed…
Correct answer: trade diversion- A. a country moves from autarky to free trade
- B. a movement to a customs union reduces the costs of trade through standardization economic integration results in a
- C. economic integration results in a movement in product origin to a lower cost member country
- D. economic integration results in a shift in product origin from a lower-cost, nonmember country to a member country having higher costs
Explanation: Trade diversion occurs when integration shifts imports from a lower-cost nonmember supplier to a higher-cost member supplier because the…
Correct answer: economic integration results in a shift in product origin from a lower-cost, nonmember country to a member country having higher costs- A. elimination of trade restrictions among member countries
- B. a common tax system and monetary union
- C. prohibition to restriction on factor movements
- D. a common tariff levied in imports from nonmembers
Explanation: A common market removes internal trade barriers, permits factor movement, and usually applies a common external tariff.
Correct answer: a common tax system and monetary union- A. Increasing the number of shares from 10 to 20
- B. All of these answers provide the same amount of risk reduction
- C. Increasing the number of shares in the portfolio from 1 to 10
- D. Increasing the number of shares from 20 to 30
Explanation: Diversification reduces firm-specific risk most sharply when a portfolio expands from very few holdings, especially from one to ten.
Correct answer: Increasing the number of shares in the portfolio from 1 to 10- A. information analysis
- B. risk management
- C. fundamental analysis
- D. diversification
Explanation: Fundamental analysis evaluates a company's financial statements, business condition and future earnings prospects to estimate its…
Correct answer: fundamental analysis- A. reduce aggregate risk
- B. eliminate all risk
- C. increase the standard deviation of the portfolio's return
- D. reduce idiosyncratic risk
Explanation: Diversification spreads investments across assets whose individual risks are not perfectly correlated, thereby reducing idiosyncratic or…
Correct answer: reduce idiosyncratic risk- A. After Gull buys fire insurance, he begins to smoke cigarettes in bed.
- B. None of these answers demonstrate moral hazard
- C. Mahmood has been feeling poorly lately so he seeks health insurance
- D. All of these answers demonstrate moral hazard
Explanation: Moral hazard occurs when insurance changes behaviour after coverage is obtained, as Gull's insured status encourages riskier smoking…
Correct answer: After Gull buys fire insurance, he begins to smoke cigarettes in bed.