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160+ Principles of Micro Economics Solved MCQs

These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Bachelor of Arts in Economics (BA Economics) .

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51.

Mannheim defines ________as the sum of those methods by which a society tries to influence human behavior to maintain a given order.

A. social control
B. constitution
C. policing
D. democracy
Answer» A. social control
discuss
52.

Implicit costs are:

A. equal to total fixed costs.
B. comprised entirely of variable costs.
C. "payments" for self-employed resources.
D. always greater in the short run than in the long run.
Answer» C. "payments" for self-employed resources.
discuss
53.

Which would be an implicit cost for a firm? The cost:

A. of worker wages and salaries for the firm.
B. paid for leasing a building for the firm.
C. paid for production supplies for the firm.
D. of wages foregone by the owner of the firm.
Answer» D. of wages foregone by the owner of the firm.
discuss
54.

If a firm's revenues just cover all its opportunity costs, then:

A. normal profit is zero.
B. economic profit is zero.
C. total revenues equal its explicit costs.
D. total revenues equal its implicit costs.
Answer» B. economic profit is zero.
discuss
55.

Suppose a firm sells its product at a price lower than the opportunity cost of the inputs used to produce it. Which is true?

A. the firm will earn accounting and economic profits.
B. the firm will face accounting and economic losses.
C. the firm will face an accounting loss, but earn economic profits.
D. the firm may earn accounting profits, but will face economic losses.
Answer» D. the firm may earn accounting profits, but will face economic losses.
discuss
56.

Suppose that a firm produces 200,000 units a year and sells them all for Rs.10 each. The explicit costs of production are Rs.1,500,000 and the implicit costs of production are Rs. 300,000. The firm has an accounting profit of:

A. rs. 500,000 and an economic profit of rs. 200,000.
B. rs. 400,000 and an economic profit of rs. 200,000.
C. rs. 300,000 and an economic profit of rs. 400,000.
D. rs. 200,000 and an economic profit of rs. 500,000.
Answer» A. rs. 500,000 and an economic profit of rs. 200,000.
discuss
57.

The short run is a time period in which:

A. all resources are fixed.
B. the level of output is fixed.
C. the size of the production plant is variable.
D. some resources are fixed and others are variable.
Answer» D. some resources are fixed and others are variable.
discuss
58.

The law of diminishing returns only applies in cases where:

A. there is increasing scarcity of factors of production.
B. the price of extra units of a factor is increasing.
C. there is at least one fixed factor of production.
D. capital is a variable input.
Answer» C. there is at least one fixed factor of production.
discuss
59.

The marginal product of labor curve shows the change in total product resulting from:

A. one-unit increase in the quantity of a particular resource used, letting other resources vary.
B. one-unit increase in the quantity of a particular resource used, holding constant other resources.
C. change in the cost of a variable resource.
D. change in the cost of a fixed resource.
Answer» B. one-unit increase in the quantity of a particular resource used, holding constant other resources.
discuss
60.

When the total product curve is falling, the:

A. marginal product of labor is zero.
B. marginal product of labor is negative.
C. average product of labor is increasing.
D. average product of labor must be negative
Answer» B. marginal product of labor is negative.
discuss
61.

When marginal product reaches its maximum, what can be said of total product?

A. total product must be at its maximum
B. total product starts to decline even if marginal product is positive
C. total product is increasing if marginal product is still positive
D. total product levels off
Answer» C. total product is increasing if marginal product is still positive
discuss
62.

Variable costs are:

A. sunk costs.
B. multiplied by fixed costs.
C. costs that change with the level of production.
D. defined as the change in total cost resulting from the production of an additional unit of output.
Answer» C. costs that change with the level of production.
discuss
63.

Which is not a fixed cost?

A. monthly rent of rs. 1,000 contractually specified in a one-year lease
B. an insurance premium of rs. 50 per year, paid last month
C. an attorney\s retainer of rs. 50,000 per year
D. a worker\s wage of rs. 15 per hour
Answer» D. a worker\s wage of rs. 15 per hour
discuss
64.

If you know that with 8 units of output, average fixed cost is Rs. 12.50 and average variable cost is Rs. 81.25, then total cost at this output level is:

A. rs. 93.75.
B. rs. 97.78.
C. rs. 750.
D. rs. 880.
Answer» C. rs. 750.
discuss
65.

With fixed costs of Rs. 400, a firm has average total costs of Rs. 3 and average variable costs of Rs. 2.50. Its output is:

A. 200 units.
B. 400 units.
C. 800 units.
D. 1,600 units.
Answer» C. 800 units.
discuss
66.

The reason the marginal cost curve eventually increases as output increases for the typical firm is because:

A. of diseconomies of scale.
B. of minimum efficient scale.
C. of the law of diminishing returns.
D. normal profit exceeds economic profit.
Answer» C. of the law of diminishing returns.
discuss
67.

If the short-run average variable costs of production for a firm are rising, then this indicates that:

A. average total costs are at a maximum.
B. average fixed costs are constant.
C. marginal costs are above average variable costs.
D. average variable costs are below average fixed costs.
Answer» C. marginal costs are above average variable costs.
discuss
68.

If a more efficient technology was discovered by a firm, there would be:

A. an upward shift in the avc curve.
B. an upward shift in the afc curve.
C. a downward shift in the afc curve.
D. a downward shift in the mc curve.
Answer» D. a downward shift in the mc curve.
discuss
69.

A firm encountering economies of scale over some range of output will have a:

A. rising long-run average cost curve.
B. falling long-run average cost curve.
C. constant long-run average cost curve.
D. rising, then falling, then rising long-run average cost curve.
Answer» B. falling long-run average cost curve.
discuss
70.

If all resources used in the production of a product are increased by 20 percent and output increases by 20 percent, then there must be:

A. economies of scale.
B. diseconomies of scale.
C. constant returns to scale.
D. increasing average total costs.
Answer» C. constant returns to scale.
discuss
71.

Which of the following statements best describes the general form of a production function:
(i) It is a purely technological relationship between quantities of input and quantities of output.
(ii) It represents the technology of an organisation, sector of an economy.
(iii) Prices of inputs or of the output do not enter into the production function.
(iv) It is a flow concept describing the transformation of inputs into output per unitof time.

A. (i),(ii) and (iv)
B. (i) and (ii)
C. (i) and (iv)
D. all of the above
Answer» D. all of the above
discuss
72.

Which of the following statements describes the presence of diminishing returns. Holding at least one factor constant …....

A. the marginal product of a factor is positive and rising.
B. the marginal product of a factor is positive but falling.
C. the marginal product of a factor is falling and negative.
D. the marginal product of a factor is constant.
Answer» B. the marginal product of a factor is positive but falling.
discuss
73.

Which of the following statements describes increasing returns to scale:

A. doubling the inputs used leads to double the output.
B. increasing the inputs by 50% leads to a 25% increase in output.
C. increasing inputs by 1/4 leads to an increase in output of 1/3.
D. none of the above.
Answer» C. increasing inputs by 1/4 leads to an increase in output of 1/3.
discuss
74.

Economies of scale exist if:

A. as the amount of capital increases, the cost of producing per unit rises
B. as the amount of capital increases, the cost of producing per unit falls
C. as the amount of capital increases, the marginal cost rises
D. as the amount of capital increases, the marginal physical product falls
Answer» B. as the amount of capital increases, the cost of producing per unit falls
discuss
75.

Whenever marginal product is declining with increasing use of an input,

A. total product is declining as input increases.
B. average product is declining as input use increases
C. marginal product is greater than average product
D. total product is increasing at a decreasing rate as input use increases.
Answer» D. total product is increasing at a decreasing rate as input use increases.
discuss
76.

Whenever marginal product is increasing with increasing use of an input,

A. total product is increasing at a decreasing rate
B. total product is increasing at an increasing rate
C. marginal product is less than average product
D. average product is decreasing.
Answer» B. total product is increasing at an increasing rate
discuss
77.

When average product is at a maximum, marginal product is

A. zero
B. increasing
C. equal to average product
D. greater than average product
Answer» C. equal to average product
discuss
78.

Whenever average product is declining, with increases in input usage,

A. marginal product is less than average product
B. total product is declining with increases in input
C. total product is increasing with increases in input
D. marginal product is greater than average product
Answer» B. total product is declining with increases in input
discuss
79.

The total product curve may initially show output increasing at an increasing rate as more labour is hired because of the:

A. declining quality of the labor force.
B. principle of comparative advantage.
C. law of diminishing marginal returns.
D. increase in marginal physical product.
Answer» D. increase in marginal physical product.
discuss
80.

If labour is the only variable resource and its marginal physical product falls as more workers are hired:

A. the law of diminishing marginal returns is at work.
B. marginal cost is rising.
C. average cost may still be declining.
D. average physical product may still be rising.
Answer» A. the law of diminishing marginal returns is at work.
discuss
81.

When both average and total product are greater than zero, and marginal product equals average product, then total product:

A. is at a maximum.
B. is positive and rising.
C. is falling.
D. is negative but rising.
Answer» B. is positive and rising.
discuss
82.

Costs incurred only when production occurs are known as:

A. explicit costs.
B. fixed costs.
C. variable costs.
D. technological expenses.
Answer» C. variable costs.
discuss
83.

The law of diminishing marginal returns is encountered as increasing amounts of labour are hired because:

A. as production rises, the additional labor hired is less and less skilled.
B. experienced workers are hired before the less skilled.
C. each extra worker hired decreases the amounts of land and capital per worker, so the work place becomes more congested and managerial control becomes more difficult.
D. as more and more is produced, selling it requires cutting prices.
Answer» C. each extra worker hired decreases the amounts of land and capital per worker, so the work place becomes more congested and managerial control becomes more difficult.
discuss
84.

Which of the following is irrelevant for rational decision making?

A. total variable cost (tvc)
B. explicit cost.
C. average fixed cost (afc).
D. marginal cost (mc).
Answer» A. total variable cost (tvc)
discuss
85.

A curve that can never be “U” shaped is the:

A. average variable cost curve.
B. marginal cost curve.
C. average fixed cost curve.
D. average total cost curve.
Answer» C. average fixed cost curve.
discuss
86.

Diminishing marginal returns are most compatible with:

A. economies of scale.
B. advantages from specialization.
C. positively-sloped marginal cost curves
D. depreciation of the capital stock.
Answer» B. advantages from specialization.
discuss
87.

If average variable costs fall as output grows:

A. marginal costs must also be declining.
B. fixed cost must also be declining.
C. total cost must also be declining.
D. average cost must be below average variable cost.
Answer» C. total cost must also be declining.
discuss
88.

In economic theory the costs of a firm

A. tend to be less than the everyday use of the term costs would suggest
B. includes implicit as well as explicit outlays
C. always decline as more output is produced
D. are usually defined in such a way that profits will be larger than the
Answer» B. includes implicit as well as explicit outlays
discuss
89.

The average total costs of the firm as defined in standard economic theory

A. are the sum of the fixed and any variable costs divided by the number of units of labour input
B. are the sum of the fixed and any variable costs
C. are the sum of the average fixed and the total variable costs
D. are the sum of the fixed and variable costs divided by the number of units of output
Answer» D. are the sum of the fixed and variable costs divided by the number of units of output
discuss
90.

The short run as the term is used in connection with the theory of the firm is a period of time:

A. too short for the firm to vary all its inputs
B. no more than a week
C. long enough for the firm to vary the quantity of all its inputs
D. in which the fixed costs are zero
Answer» A. too short for the firm to vary all its inputs
discuss
91.

According to the principle of diminishing marginal physical productivity, in the short run

A. as output increases, costs per unit of output must eventually decline
B. marginal product will decrease continually as output is expanded
C. as output is increased, the quantity of inputs needed to produce additional units of output will increase, causing costs per unit of output to increase
D. total output will become negative once marginal product begins to decline
Answer» C. as output is increased, the quantity of inputs needed to produce additional units of output will increase, causing costs per unit of output to increase
discuss
92.

Economies of scale

A. set in as soon as diminishing marginal physical productivity is experienced
B. are usually considered to be a phenomenon of the long run
C. are not always available in the short run
D. help ensure that industries will be competitive rather than monopolized
Answer» B. are usually considered to be a phenomenon of the long run
discuss
93.

Marginal costs and average variable costs are equal when

A. average variable cost is a maximum
B. average variable cost is rising
C. average variable cost is falling
D. average variable cost is a minimum
Answer» D. average variable cost is a minimum
discuss
94.

Theory of demand examines the behaviour of the--------

A. Consumer
B. Producer
C. Firm
D. Industry
Answer» A. Consumer
discuss
95.

The want satisfying power of a commodity:

A. Satisfaction
B. Utility
C. Value
D. Marginal Utility
Answer» B. Utility
discuss
96.

Utility is the concept which is:

A. Objective
B. Subjective
C. Both
D. None
Answer» B. Subjective
discuss
97.

Change in utility resulting from one unit change in consumption is called:

A. Total Utility
B. Extra Utility
C. Marginal Utility
D. Average Utility
Answer» C. Marginal Utility
discuss
98.

When Total Utility is maximum, Marginal Utility is :

A. Zero
B. Negative
C. Positive
D. One
Answer» A. Zero
discuss
99.

When Marginal Utility is negative, Total Utility:

A. Declines
B. Increases
C. Remains the same
D. None of these
Answer» A. Declines
discuss
100.

Saturation point is the point where:

A. TU = 0
B. MU = 0
C. MU is +ve
D. TU = 1
Answer» B. MU = 0
discuss

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