1. If the average product of labor is 5.

A firm's short-run marginal cost

falling, then: will rise due to:
A. The marginal product is greater A. Diseconomies of scale
than the average product B. Lower product price
B. Output must be at its maximum C. Inefficiency
C. The marginal product must be D. Need to break even
falling E. Diminishing returns
D. The marginal product must be
6. The short run in microeconomics
negative
is defined as:
E. The average product has not yet
A. Less than one year
peaked
B. Between 1–4 years
2. Which best demonstrates the C. Too short to change output
law of diminishing returns? D. At least one fixed input
A. A farm doubles all inputs, output E. Fixed costs exceed variable costs
less than doubles
7. If diminishing marginal returns
B. A 5-unit output increase from the
start with the 2nd worker, what
4th worker, 7-unit from the 5th
remains constant?
C. Fixed input increases needing
A. Average product
fewer variable inputs
B. Total cost
D. Output increases at a
C. Total fixed cost
diminishing rate with more labor
D. Total variable cost
E. More cooks increase meals by
E. Marginal cost
increasing amounts
8. What is always true of average
3. If marginal product > average
and marginal costs?
product, then:
A. ATC ↑ when MC ↑
A. AP is increasing
B. MC ↑ when AVC > MC
B. AP is decreasing
C. AVC ↑ when MC ↑
C. MP is increasing
D. AVC ↑ when MC > AVC
D. Total product is decreasing
E. ATC constant when MC constant
E. Total product is at maximum
9. As output increases, ATC – AVC
4. When total physical product is at
decreases because:
its maximum, marginal physical
A. Total cost ↑
product is:
B. Marginal cost ↑
A. Greater than 1
C. AFC ↓
B. Equal to 1
D. MPP ↓
C. Equal to 0
E. Long-run ATC ↓
D. Less than 0
E. Constant
10. Why is the short-run ATC curve 15. The law of diminishing returns:
U-shaped? A. Happens in few economies
A. Spreading TFC and constant B. Can be avoided with more inputs
returns C. Always applies in short-run
B. Spreading TFC and diminishing production
returns D. Only applies in long run
C. Increasing TFC and returns
16. The slope of the production
D. Increasing AVC and decreasing
function is:
returns
A. MPP
E. Decreasing AVC and increasing
B. Average product
returns
C. Unit cost
11. A new tax on capital increases D. Input price
fixed cost. In the short run:
17. Profit is:
A. MC ↑
A. TR – VC
B. AVC ↑
B. TC – FC
C. ATC ↑
C. TR – TC
D. Output ↑
D. Revenue per unit
E. Output ↓
18. “Unit labor cost” equals:
12. Increased labor productivity
A. Wage rate
shifts which curve down?
B. Wage ÷ MPP
A. ATC
C. Total cost ÷ output
B. AVC
D. Total wage ÷ revenue
C. MPP
D. MC 19. A fixed cost in the short run is:
E. TVC A. Labor
B. Electricity
13. Economic vs. accounting cost:
C. Raw materials
A. Economic includes only explicit
D. Factory rent
costs
B. Accounting includes opportunity 20. Why is the ATC curve U-
cost shaped?
C. Economic = implicit + explicit A. Diminishing returns cause MC to
D. Economic cost is always lower rise
B. AFC drops below AVC
14. If MC is rising, then:
C. Constant MPP
A. ATC is falling
D. Diseconomies of scale dominate
B. ATC is below MC
C. ATC is above MC Answer Key (For Teacher Use
D. Total cost is rising Only)
1. C 2. D 3. A 4. C 5. E 6. A. Total revenue by number
D 7. C 8. D 9. C 10. B of firms
B. A firm’s sales by industry
2. 11. C 12. B 13. C 14. D average
15. C 16. A 17. C 18. B C. Sales of a single firm by
19. D 20. A total market sales
D. Market size by number of
3. 1. The goal of a company in competitors
an oligopoly industry is to: ✅ Answer: C
A. Lower prices 8. 6. Market share refers to the
B. Increase competition percentage of:
C. Increase market share and A. Sales a company reinvests
profits B. Market output produced by
D. Decrease market control a firm
✅ Answer: C C. Profits kept
4. 2. Concentration ratios may D. Employees hired
overstate firm power because ✅ Answer: B
they measure output: 9. 7. If 3 firms have $500M,
A. Without imports $300M, and $200M in sales,
B. Only for domestic the largest has what market
production when market share?
boundaries are international A. 40%
C. Across all industries B. 50%
equally C. 60%
D. Including illegal markets D. 70%
✅ Answer: B ✅ Answer: B
5. 3. A nationwide 10. 8. In a duopoly where
concentration ratio Firm A sells $900M and Firm
understates market power B sells $100M, Firm A’s
when: market share is:
A. The markets are A. 75%
international B. 85%
B. The product is seasonal C. 90%
C. The true markets are local D. 95%
and small ✅ Answer: C
D. Firms advertise heavily 11. 9. In a duopoly where
✅ Answer: C Firm A sells $400M and Firm
6. 4. The concentration ratio for B sells $100M, Firm A’s
an oligopoly is: market share is:
A. Less than 25% A. 70%
B. 30–40% B. 75%
C. Over 60% C. 80%
D. 100% D. 85%
✅ Answer: C ✅ Answer: C
7. 5. Market share is calculated 12. 10. Advertising a
by dividing: product’s unique features is
 called: C. Product differentiation
A. Branding D. Profit erosion
B. Competitive pricing ✅ Answer: C
C. Price skimming 19. 16. RC Cola lost market
D. Product differentiation share in the 1980s due to:
✅ Answer: D A. High prices
13. B. Poor taste
C. Not advertising
14. 11. Product D. Cost-cutting
differentiation involves: ✅ Answer: C
A. Lowering prices 20. 17. The kinked demand
B. Increasing output curve suggests:
C. Highlighting unique A. Prices are flexible
features B. Prices respond quickly to
D. Reducing quality costs
✅ Answer: C C. Prices stay stable even
15. 12. In oligopoly, if one when costs rise
firm increases market share D. Demand is perfectly
at current prices, others: elastic
A. Match the output ✅ Answer: C
B. Lower prices 21. 18. Rival firms match
C. Lose market share price cuts but not increases.
D. Exit the market This leads to:
✅ Answer: C A. Elastic demand
16. 13. Oligopolists cutting B. Kinked demand
prices to gain share results C. Inelastic supply
in: D. Market failure
A. More firms entering ✅ Answer: B
B. Higher profits 22. 19. The kink in the
C. A movement down the demand curve results from:
demand curve A. Cost changes
D. Government intervention B. Government policy
✅ Answer: C C. Asymmetric responses to
17. 14. Price cuts by price changes
oligopolists generally lead to: D. Constant marginal costs
A. Higher prices ✅ Answer: C
B. Lower prices, higher 23. 20. Kinked demand
output, smaller profits curve theory explains:
C. Government subsidies A. Firm shutdowns
D. Improved product quality B. Price volatility
✅ Answer: B C. Firm independence
18. 15. Which is NOT a D. Interdependence
danger of pricing consequences
experiments in oligopoly? ✅ Answer: D
A. Price wars 24.
B. Retaliation
25. 21. If a firm at the kink 31. 27. Game theory
increases price, it will: studies:
A. Lose market share A. Taxes
B. Gain market share B. Independent pricing
C. Face increased demand C. Strategic decisions under
D. See no change interdependence
✅ Answer: A D. Customer behavior only
26. 22. If a firm at the kink ✅ Answer: C
decreases price, it will: 32. 28. A payoff matrix
A. Gain market share shows:
B. Lose customers A. Total costs
C. Maintain market share B. Demand elasticity
D. Face regulation C. Strategic decision
✅ Answer: C outcomes
27. 23. A kinked demand D. Price ceilings
curve indicates rivals match ✅ Answer: C
all: 33. 29. Oligopolists
A. Output increases coordinate production to
B. Price reductions maximize:
C. Marketing moves A. Brand recognition
D. Product changes B. Costs
✅ Answer: B C. Profits
28. 24. Rivals typically D. Prices
respond to an oligopolist's ✅ Answer: C
price cut by: 34. 30. Oligopolists may
A. Ignoring it not coordinate if:
B. Raising their own prices A. Rivals cheat
C. Cutting their prices too B. Laws permit
D. Filing lawsuits C. Demand is elastic
✅ Answer: C D. Prices are stable
29. 25. An oligopolist’s ✅ Answer: A
main concern when changing
price is:
A. Government reaction
B. Market conditions
C. Competitor response
D. Supplier pressure
✅ Answer: C
30. 26. If rivals ignore a
firm’s price changes, the
demand curve:
A. Becomes kinked
B. Becomes horizontal
C. Loses the kink
D. Shifts right
✅ Answer: C