MANAGERIAL ECONOMICS MCQs

Here are some multiple-choice questions for the Managerial Economics course with the correct solution. These MCQs are collected and compiled from different online and offline sources.

Which of the following is NOT one of the four basic types of market structure?

• Perfect competition
• Monopsony
• Oligopoly
• Monopoly

Which of the following is an example of a public good?

• Fast food
• Police protection
• Luxury car
• Cable television

In microeconomics, what is the term for the additional cost incurred when one more unit is produced?

• Variable cost
• Marginal cost
• Average cost
• Fixed cost

Which of the following is a characteristic of a perfectly competitive market?

• All of the above
• Many buyers and sellers
• Firms can enter and exit the market freely
• All firms produce identical products

Which of the following is a characteristic of a monopoly?

• Barriers to entry
• Unique product
• A single seller
• All of the above

___________________ is an example of a price ceiling.

• Rent control
• Minimum wage laws
• Tariffs on imports
• None of the above

What is the difference between a normal good and an inferior good?

• Normal goods are more expensive than inferior goods
• Normal goods have a positive income elasticity of demand, while inferior goods have a negative income elasticity of demand
• Normal goods are of higher quality than inferior goods
• Normal goods are produced by large corporations, while inferior goods are produced by small businesses

Which of the following is NOT a factor that affects demand?

• Price of the good
• Income of consumers
• Availability of substitutes
• Production costs

________________ is an example of a substitute good.

• Peanut butter and jelly
• Gasoline and a car
• Milk and cheese
• None of the above

Which of the following is a characteristic of a monopolistic competition?

• Many sellers
• Differentiated products
• Free entry and exit
• All of the above

Which of the following is a characteristic of a production function?

• Shows the relationship between inputs and outputs
• Describes the costs of production
• Explains the behavior of consumers
• None of the above

_______________is NOT a factor of production.

• Land
• Labor
• Money
• Capital

Which of the following is NOT a factor that affects supply?

• rice of the good
• Technology
• Number of buyers in the market
• Production costs

Which of the following is an example of a positive externality?

• Pollution from a factory
• Increased traffic from a new road
• Vaccinations to prevent the spread of disease
• Loud music from a party

____________is NOT a type of market structure.

• Monopoly
• Oligopoly
• Monopsony
• Perfect monopoly

Which of the following is NOT a characteristic of a public good?

• Non-excludability
• Non-rivalry
• Excludability
• Provided by the government.

_______________ is NOT a determinant of demand.

• Price of the good
• Income of the consumer
• Price of related goods
• Cost of production

Which of the following is NOT a characteristic of a monopolistically competitive market?

• Product differentiation
• A large number of firms
• Barriers to entry
• Control over price by individual firms

_________________ is NOT a determinant of supply.

• Price of the good
• Technology
• Price of related goods
• Income of the consumer

Which of the following is an example of a natural monopoly?

• A small coffee shop in a small town
• A power company in a large city
• A large grocery store chain
• None of the above

__________________is an example of a negative externality.

• Planting a garden in your backyard
• Smoking cigarettes in public
• Buying a new car
• Taking a walk in the park

Which of the following is the formula for calculating disposable income (DI)?

• DI = PI – personal taxes
• DI = NI – social security contributions
• DI = GDP – exports
• DI = NNP – indirect taxes + subsidies

Which of the following is NOT a characteristic of a monopoly?

• A single seller
• A unique product
• Barriers to entry
• A large number of firms

__________________ is NOT a method of cost analysis.

• Marginal cost analysis
• Average cost analysis
• Total cost analysis
• Perfect competition analysis

Which of the following is an example of a sunk cost?

• The cost of raw materials used in production
• The cost of training new employees
• The cost of purchasing a new machine for production
• The cost of advertising a new product

Which of the following best describes the time value of money?

• The value of money over time due to inflation
• The value of money in the future compared to the present
• The value of money in the past compared to the present
• The value of money at a specific point in time

What is the optimal consumption bundle?

• The combination of goods and services that maximizes a consumer’s total utility
• The combination of goods and services that minimizes a consumer’s total utility
• The combination of goods and services that maximizes a consumer’s budget constraint
• None of the above

Which of the following best describes marginal analysis?

• Analysis of the total cost of production
• Analysis of the average cost of production
• Analysis of the additional cost or benefit of producing one more unit
• Analysis of the fixed cost of production

ECONOMICS MCQs

What is the formula for calculating marginal utility?

• MU = (change in total utility) / (change in quantity consumed)
• MU = (change in quantity consumed) / (change in total utility)
• MU = (total utility) / (quantity consumed)
• None of the above

Which of the following is NOT a factor of production?

• Land
• Consumption
• Labor
• Capital

Which of the following best defines gross domestic product (GDP)?

• The total value of all goods and services produced by a country in a given period of time
• The total income earned by all citizens of a country in a given period of time
• The total value of all imports and exports of a country in a given period of time
• The total value of all investments made by a country in a given period of time

National income is the sum of:

• GDP and NNP
• Gross national product and net national product
• Gross income and net income
• Gross investment and net investment

Which of the following is included in the calculation of GDP?

• The value of stocks and bonds traded on the stock market
• The value of goods produced by foreign companies located in the country
• The value of intermediate goods used in the production process
• The value of goods and services produced by the government for its own use

What is the law of diminishing marginal utility?

• As the quantity of a good or service consumed increases, the marginal utility of each additional unit consumed decreases
• As the quantity of a good or service consumed increases, the marginal utility of each additional unit consumed increases
• As the quantity of a good or service consumed increases, the total utility of each additional unit consumed decreases
• None of the above

Which of the following is the formula for calculating GDP?

• GDP = C + I + G + (X-M)
• GDP = C + I + (X-M)
• GDP = C + G + (X-M)
• GDP = I + G + (X-M)

What is marginal utility?

• The total satisfaction obtained from consuming a good or service
• The additional satisfaction obtained from consuming one more unit of a good or service
• The average satisfaction obtained from consuming a good or service
• None of the above

Which of the following is the formula for calculating net national product (NNP)?

• NNP = GDP – depreciation
• NNP = GDP – taxes
• NNP = GDP – exports
• NNP = GDP – imports

What is the equi-marginal principle of economics?

• A principle that states that average utility must be equalized across all goods and services
• None of the above
• A principle that states that marginal utility must be equalized across all goods and services
• A principle that states that total utility must be equalized across all goods and services

Which of the following is the formula for calculating national income (NI)?

• NI = NNP – indirect taxes + subsidies
• NI = GDP – depreciation
• NI = NNP – taxes
• NI = GDP – exports

What is the equi-marginal principle also known as?

• The law of diminishing marginal utility
• The law of equi-marginal utility
• The law of supply and demand
• The law of perfect competition

_____________ is the formula for calculating personal income (PI).

• PI = NI – corporate profits
• PI = NI – indirect taxes + subsidies
• PI = NI – social security contributions
• PI = NI – depreciation

Which of the following is the most common method used to measure national income?

• Net National Product (NNP)
• National Income (NI)
• Gross Domestic Product (GDP)
• Gross National Product (GNP)

Which of the following is NOT included in national income?

• Rental income
• Personal savings
• Wages and salaries
• Interest income

National income is the sum of:

• Gross investment and net investment
• Gross national product and net national product
• GDP and NNP
• Gross income and net income

__________________ is NOT included in the calculation of GDP.

• The value of final goods and services produced for consumption
• The value of intermediate goods used in the production process
• The value of goods and services produced by foreign companies located in the country
• The value of capital goods used in the production process

Which of the following is the largest component of national income?

• Compensation of employees
• Proprietor’s income
• Rental income
• Corporate profits

Which of the following measures the total value of all final goods and services produced within a country’s borders in a given period of time?

• Gross Domestic Product (GDP)
• Gross National Product (GNP)
• Net National Product (NNP)
• National Income (NI)

_____________ is an example of a price floor.

• Minimum wage
• Maximum price for a luxury car
• Maximum price for rent in a city
• None of the above

Which of the following is NOT included in the calculation of gross domestic product?

• Consumption expenditures
• Investment expenditures
• Government purchases of goods and services
• Transfer payments

___________________ is NOT a factor of production.

• Labor
• Capital
• Entrepreneurship
• Consumer goods

Which of the following is NOT a key element of the Theory on Demand?

• The role of supply-side factors in driving innovation
• The need for interdisciplinary research to understand demand
• The importance of social and cultural factors in shaping demand
• The idea that consumer preferences are constantly evolving

_____________ is an example of a price floor.

• Maximum price for a luxury car
• Maximum price for rent in a city
• Minimum wage
• None of the above

Which of the following represents the total value of all factor payments in an economy in a given period of time?

• Net National Product (NNP)
• National Income (NI)
• Gross Domestic Product (GDP)
• Gross National Product (GNP)

Which of the following is a type of factor income?

• Interest
• Rent
• Wages
• All of the above

What is the role of market research in the Theory on Demand?

• To identify supply-side factors that drive innovation
• To develop new technologies
• To identify consumer preferences
• To understand how social and cultural factors shape demand

Which of the following measures the income earned by individuals and businesses from the production of goods and services?

• Factor income method
• Expenditure method
• Income approach
• Value added approach

Which of the following is included in the calculation of national income using the factor income method?

• Corporate profits
• Dividend payments
• Interest income
• All of the above

What is the role of interdisciplinary research in the Theory on Demand?

• To identify consumer preferences
• To understand how social and cultural factors shape demand
• To develop new technologies
• To identify supply-side factors that drive innovation

Which of the following is NOT included in the calculation of national income using the factor income method?

• Depreciation
• Interest payments on government debt
• Indirect taxes
• Subsidies

Which of the following measures the value of all goods and services produced in an economy, minus the cost of intermediate inputs?

• Gross Domestic Product (GDP)
• Gross National Product (GNP)
• Net National Product (NNP)
• Value added

What is the main focus of the Theory on Demand?

• To predict future trends in demand
• To develop new technologies
• To understand the relationship between demand and innovation
• To satisfy consumer demand

Which of the following is a measure of the productivity of labor?

• Average hourly wage
• Labor productivity
• Total labor cost
• Labor force participation rate

What is the main criticism of the Theory on Demand?

• It overlooks the role of supply-side factors in driving innovation
• It is too focused on social and cultural factors
• It is too complex and difficult to apply in practice
• It does not provide a clear framework for predicting future trends in demand

Which of the following is a type of factor income paid to owners of capital?

• Wages
• Rent
• Interest
• None of the above

What is the main concept of the Theory on Demand?

• It aims to develop a framework for predicting future trends in demand
• It is a framework for developing theories on how to satisfy consumer demand
• It is a framework for developing theories that are tailored to specific demands
• It is a framework for developing theories that arise from demand

The marginal principle states that economic decisions should be based on:

• The total cost of the decision
• The average cost of the decision
• The additional benefit of the decision
• None of the above

The law of comparative advantage states that:

• A country should specialize in producing goods in which it has the absolute advantage
• A country should produce only the goods in which it has the comparative advantage
• A country should produce all goods domestically, without trade
• None of the above

The price elasticity of demand for goods with few substitutes is generally:

• High
• Low
• Unit elastic
• Perfectly inelastic

According to the marginal principle, an individual should continue to engage in an activity as long as:

• The total benefit is greater than the total cost
• The average benefit is greater than the average cost
• The marginal benefit is greater than the marginal cost
• The opportunity cost is greater than the sunk cost

The marginal principle is based on the law of:

• Diminishing marginal utility
• Increasing marginal utility
• Constant marginal utility
• Marginal cost

The opportunity cost of producing a good:

• Increases as the quantity produced increases
• Decreases as the quantity produced increases
• Stays the same as the quantity produced increases
• None of the above

When an individual chooses to consume more of a good, the marginal utility of that good:

• Increases
• Decreases
• Stays the same
• None of the above

The production possibilities frontier is bowed outwards because of:

• Increasing marginal cost
• Diminishing marginal returns
• Constant opportunity cost
• None of the above

According to the marginal principle, a firm should produce an additional unit of output as long as:

• The total revenue is greater than the total cost
• The average revenue is greater than the average cost
• The marginal revenue is greater than the marginal cost
• The fixed cost is greater than the variable cost

The marginal cost of producing an additional unit of output:

• Increases as output increases
• Decreases as output increases
• Stays the same as output increases
• None of the above

The price elasticity of demand for goods with many substitutes is generally:

• High
• Low
• Unit elastic
• Perfectly elastic

The production possibilities frontier shows:

• The maximum amount of goods that can be produced with available resources
• The minimum amount of goods that can be produced with available resources
• The average amount of goods that can be produced with available resources
• None of the above

When an individual faces a trade-off between two options, the opportunity cost is:

• The value of the chosen option
• The value of the foregone option
• The average of the two options
• None of the above

The marginal product of labor is:

• The additional output produced by hiring one more unit of labor
• The total output produced by all units of labor
• The average output produced by all units of labor
• None of the above

The marginal cost curve:

• Slopes upward due to increasing marginal utility
• Slopes upward due to decreasing marginal utility
• Slopes upward due to increasing marginal cost
• Slopes downward due to decreasing marginal cost

What is the relationship between total utility and marginal utility?

• Total utility increases as marginal utility decreases
• Total utility decreases as marginal utility decreases
• Total utility increases as marginal utility increases
• Total utility and marginal utility are not related

The marginal revenue curve for a perfectly competitive firm:

• Is a horizontal line
• Is a vertical line
• Slopes upward
• Slopes downward

The opportunity cost principle states that:

• Every decision has an opportunity cost
• The opportunity cost of a decision should be ignored
• The opportunity cost of a decision is always equal to its monetary cost
• None of the above

The profit-maximizing level of output for a firm occurs where:

• Total revenue equals total cost
• Marginal revenue equals marginal cost
• Average revenue equals average cost
• None of the above

The opportunity cost of going to college includes:

• The cost of tuition and books
• The salary that could have been earned by working instead
• The value of the experience gained in college
• None of the above

According to the Theory on Demand, what is the main driver of innovation?

• Supply-side factors
• Technological advancements
• Competition
• Demand-side factors

The price elasticity of demand for necessity goods is generally:

• High
• Low
• Unit elastic
• Perfectly inelastic

Who introduced the concept of cardinal utility?

• John Hicks
• Alfred Marshall
• Adam Smith
• None of the above

The marginal propensity to consume is:

• The percentage of income that is saved
• The percentage of income that is spent on consumption
• The percentage of income that is spent on investment
• The percentage of income that is spent on government purchases

The marginal propensity to save is:

• The percentage of income that is saved
• The percentage of income that is spent on consumption
• The percentage of income that is spent on investment
• The percentage of income that is spent on government purchases

Which of the following describes cardinal utility?

• Utility that can be measured in absolute terms
• Utility that can only be ranked in order of preference
• Utility that is subjective and cannot be measured
• None of the above

Elasticity of demand measures:

• The responsiveness of quantity demanded to changes in price
• The responsiveness of price to changes in quantity demanded
• The total quantity demanded in the market
• None of the above

The opportunity cost of a decision is:

• The monetary cost of the decision
• The time and effort required for the decision
• The value of the next best alternative forgone
• None of the above

If the elasticity of demand for a good is greater than 1, the demand is said to be:

• Elastic
• Inelastic
• Unit elastic
• Perfectly elastic

Price elasticity of demand measures:

• The responsiveness of quantity demanded to changes in price
• The responsiveness of price to changes in quantity demanded
• The total quantity demanded in the market
• None of the above

If the elasticity of demand for a good is less than 1, the demand is said to be:

• Elastic
• Inelastic
• Unit elastic
• Perfectly elastic

Who introduced the concept of ordinal utility?

• John Hicks
• Alfred Marshall
• Adam Smith
• None of the above

If the elasticity of demand for a good is equal to 1, the demand is said to be:

• Elastic
• Inelastic
• Unit elastic
• Perfectly elastic

Which of the following is a limitation of cardinal utility?

• It cannot be used to compare utilities between individuals
• It cannot explain why some goods are preferred over others
• It does not take into account changes in income and prices
• All of the above

If the elasticity of demand for a good is infinite, the demand is said to be:

• Elastic
• Inelastic
• Unit elastic
• Perfectly elastic

Which of the following is a limitation of ordinal utility?

• It cannot be used to compare utilities between individuals
• It cannot explain why some goods are preferred over others
• It does not take into account changes in income and prices
• None of the above

If the elasticity of demand for a good is zero, the demand is said to be:

• Elastic
• Inelastic
• Unit elastic
• Perfectly inelastic

Which of the following is an assumption of cardinal utility?

• Individuals are rational and aim to maximize their utility
• Preferences are complete and transitive
• Marginal utility of a good decreases as more of it is consumed
• None of the above

When the price of a good increases, if the quantity demanded decreases by a larger percentage, the demand is:

• Elastic
• Inelastic
• Unit elastic
• Perfectly inelastic

Which of the following statements is true about the shape of an indifference curve?

• Indifference curves are always straight lines
• Indifference curves are always curved lines
• The shape of an indifference curve depends on the consumer’s preferences
• None of the above

The formula for price elasticity of demand is:

• % change in quantity demanded / % change in price
• % change in price / % change in quantity demanded
• % change in quantity supplied / % change in price
• % change in price / % change in quantity supplied

The price elasticity of demand for luxury goods is generally:

• High
• Low
• Unit elastic
• Perfectly elastic

Which of the following is an assumption of ordinal utility?

• Individuals are rational and aim to maximize their utility
• Preferences are complete and transitive
• Marginal utility of a good decreases as more of it is consumed
• None of the above

When the price of a good increases, if the quantity demanded decreases by a smaller percentage, the demand is:

• Elastic
• Inelastic
• Unit elastic
• Perfectly inelastic

If the price elasticity of demand for a good is less than 1, the demand is said to be:

• Elastic
• Inelastic
• Unit elastic
• Perfectly inelastic

Which of the following is an example of cardinal utility?

• Ranking a list of preferred foods
• Measuring the number of units of happiness gained from consuming a good
• Deciding between two options based on personal preference
• None of the above

Which of the following factors affect the elasticity of demand?

• Availability of substitutes
• Necessity of the good
• Time period for adjustment
• All of the above

If the price elasticity of demand for a good is infinite, the demand is said to be:

• Elastic
• Inelastic
• Unit elastic
• Perfectly elastic

Which of the following factors affect the price elasticity of demand?

• Availability of substitutes
• Necessity of the good
• Time period for adjustment
• All of the above

Which of the following is an example of ordinal utility?

• Ranking a list of preferred foods
• Measuring the number of units of happiness gained from consuming a good
• Deciding between two options based on personal preference
• None of the above

If the price elasticity of demand for a good is greater than 1, the demand is said to be:

• Elastic
• Inelastic
• Unit elastic
• Perfectly elastic

Which of the following is not a technique of demand forecasting?

• Time series analysis
• Cross-sectional analysis
• Surveys and consumer interviews
• Random sampling

Time series analysis is based on which of the following assumptions?

• Historical patterns of demand can be used to predict future demand
• Current demand is unrelated to past demand
• Future demand is not affected by changes in economic conditions or consumer behavior
• All of the above

Which of the following is a disadvantage of time series analysis?

• It can be affected by outliers and unusual events
• It does not account for changes in economic conditions or consumer behavior
• It is difficult to implement without specialized software and training
• None of the above

Cross-sectional analysis is based on which of the following assumptions?

• Similar products in different markets will have similar demand
• Different products in the same market will have similar demand
• Historical patterns of demand can be used to predict future demand
• All of the above

Which of the following is a disadvantage of cross-sectional analysis?

• It can be time-consuming and expensive to gather data
• It does not account for changes in economic conditions or consumer behavior
• It assumes that different products in the same market will have similar demand
• None of the above

Which of the following is a disadvantage of surveys and consumer interviews?

• Consumers may not accurately predict their own behavior and preferences
• It can be time-consuming and expensive to conduct
• The sample size may not be large enough to be representative of the population
• All of the above

Surveys and consumer interviews are based on which of the following assumptions?

• Consumers can accurately predict their own behavior and preferences
• Consumers are willing to provide honest and accurate information
• The sample size is large enough to be representative of the population
• All of the above

Which of the following is a technique of demand forecasting that uses statistical models to estimate the relationship between demand and various factors that influence demand?

• Regression analysis
• Time series analysis
• Cross-sectional analysis
• Surveys and consumer interviews

Whicof the following is a disadvantage of regression analysis?

• It assumes a linear relationship between demand and the influencing factors
• It does not account for changes in economic conditions or consumer behavior
• It requires specialized software and training
• None of the above

Which of the following is a technique of demand forecasting that involves collecting data on the sales of similar products in different markets and using that data to forecast demand for a new product in a new market?

• Analogous forecasting
• Time series analysis
• Cross-sectional analysis
• Regression analysis

Indifference curve analysis is a graphical tool used to illustrate which of the following concepts?

• Marginal utility
• Elasticity of demand
• Consumer preferences
• Production possibilities

Which of the following is an example of a non-factor payment?

• Rent paid by a business for the use of a building
• Interest paid by a business on a loan
• Dividend paid to a shareholder by a corporation
• Transfer payment made by the government to an individual

The price elasticity of demand for goods with long-term use is generally:

• High
• Low
• Unit elastic
• Perfectly inelastic

Indifference curves are typically downward sloping, which means that as a consumer moves down the curve, which of the following is true?

• The quantity consumed of one good increases while the quantity consumed of the other good decreases
• The total utility of the consumer decreases
• The marginal utility of the consumer decreases
• Both a) and b) are true

Two goods are said to be perfect substitutes when which of the following is true?

• The consumer is indifferent between the two goods
• The consumer derives the same amount of utility from each unit of either good
• The consumer only consumes one of the two goods
• None of the above

Which of the following statements is true about the slope of an indifference curve?

• The slope of an indifference curve is always positive
• The slope of an indifference curve is always negative
• The slope of an indifference curve is zero
• The slope of an indifference curve is negative but may vary in magnitude

Which of the following is not an assumption of indifference curve analysis?

• The consumer’s preferences are complete
• The consumer’s preferences are transitive
• The consumer’s preferences are continuous
• The consumer’s preferences are independent of income

The income consumption curve shows the relationship between which of the following?

• Income and savings
• Income and consumption
• Consumption and savings
• None of the above

The income consumption curve is typically which of the following?

• Upward sloping
• Downward sloping
• Horizontal
• Vertical

Which of the following is not an assumption of indifference curve analysis?

• The consumer’s preferences are complete
• The consumer’s preferences are transitive
• The consumer’s preferences are continuous
• The consumer’s preferences are independent of income

The slope of the income consumption curve is typically which of the following?

• Positive
• Negative
• Zero
• None of the above

The income consumption curve can be used to derive which of the following concepts?

• Marginal rate of substitution
• Income elasticity of demand
• Price elasticity of demand
• None of the above

A normal good has an income elasticity of demand that is which of the following?

• Positive
• Negative
• Zero
• None of the above

The income elasticity of demand measures which of the following?

• The responsiveness of demand to changes in price.
• The responsiveness of demand to changes in income
• The responsiveness of demand to changes in the availability of substitutes
• The responsiveness of demand to changes in government policy

The Engel curve shows the relationship between which of the following?

• Income and savings
• Income and consumption
• Consumption and savings
• None of the above

An inferior good has an income elasticity of demand that is which of the following?

• Positive
• Negative
• Zero
• None of the above

The Engel curve is typically which of the following?

• Upward sloping
• Downward sloping
• Horizontal
• Vertical

The Engel curve can be used to derive which of the following concepts?

• Marginal rate of substitution
• Income elasticity of demand
• Price elasticity of demand
• None of the above

The price consumption curve shows the relationship between which of the following?

• Price and savings
• Price and consumption
• Consumption and savings
• None of the above

The price consumption curve is typically which of the following?

• Upward sloping
• Downward sloping
• Horizontal
• Vertical

The slope of the price consumption curve is typically which of the following?

• Positive
• Negative
• Zero
• None of the above

The price consumption curve can be used to derive which of the following concepts?

• Marginal rate of substitution
• Income elasticity of demand
• Price elasticity of demand
• None of the above

The price elasticity of demand measures which of the following?

• The responsiveness of demand to changes in price
• The responsiveness of demand to changes in income
• The responsiveness of demand to changes in the availability of substitutes
• The responsiveness of demand to changes in government policy

A good with a perfectly elastic demand has a price elasticity of demand that is which of the following?

• Zero
• Greater than 1
• Equal to 1
• Infinite

The total revenue test can be used to determine which of the following is good?

• Whether it has a normal or inferior demand
• Whether it has a perfectly elastic or inelastic demand
• Whether it is a substitute or a complement
• None of the above

A good with a perfectly inelastic demand has a price elasticity of demand that is which of the following?

• Zero
• Greater than 1
• Equal to 1
• Infinite

The total revenue test states that if the price of a good increases and total revenue decreases, then demand for the good must be which of the following?

• Perfectly elastic
• Perfectly inelastic
• Unit elastic
• None of the above

Accounting costs are those that are:

• Explicit and implicit
• Implicit only
• None of the above
• Explicit only

The total revenue test states that if the price of a good increases and total revenue increases, then demand for the good must be which of the following?

• Perfectly elastic
• Perfectly inelastic
• Unit elastic
• None of the above

Economic costs are those that are:

• Explicit and implicit
• Explicit only
• Implicit only
• None of the above

Explicit costs are:

• Costs that are incurred for a specific purpose
• Costs that are paid in cash
• Costs that are not easily quantifiable
• None of the above

Implicit costs are:

• Costs that are incurred for a specific purpose
• Costs that are paid in cash
• Costs that are not easily quantifiable
• None of the above

Economic costs include which of the following?

• Accounting costs
• Implicit costs
• Opportunity costs
• All of the above

Opportunity cost is:

• The cost of an opportunity that is forgone in order to pursue a certain action
• The cost of an opportunity that is pursued
• The cost of an explicit cost
• None of the above

The difference between accounting costs and economic costs is:

• Accounting costs are always higher than economic costs
• Economic costs are always higher than accounting costs
• Accounting costs do not include opportunity costs, while economic costs do
• Economic costs do not include opportunity costs, while accounting costs do

Which of the following is an example of an implicit cost?

• Rent
• Salary paid to employees
• Opportunity cost of using owner’s time in the business
• Cost of raw materials

Which of the following is an example of an accounting cost?

• Rent
• Salary paid to employees
• Opportunity cost of using owner’s time in the business
• Cost of raw materials

Economic costs are important in decision making because they:

• Are the only costs that are relevant in decision making
• Help to identify the opportunity costs of a decision
• Are easier to quantify than accounting costs
• None of the above

The law of variable proportions is also known as the:

• Law of diminishing returns
• Law of increasing returns
• Law of constant returns
• None of the above

The law of variable proportions states that:

• As the quantity of a variable input increases, the marginal product of that input will eventually decrease
• As the quantity of a variable input increases, the marginal product of that input will eventually increase
• As the quantity of a variable input increases, the average product of that input will eventually decrease
• None of the above

The point at which the marginal product of a variable input reaches zero is known as the:

• Point of maximum returns
• Point of minimum returns
• Point of diminishing returns
• None of the above

The law of variable proportions assumes that:

• All inputs are variable in the short run
• All inputs are fixed in the short run
• At least one input is fixed in the short run
• None of the above

Which of the following is an example of the law of variable proportions in action?

• A farmer using more fertilizer on his crops and seeing a higher yield
• A restaurant hiring more waitstaff to improve service quality
• A factory investing in new machinery to increase production
• None of the above

Which of the following is an example of variable input in the short run?

• Rent
• Salary of the manager
• Raw materials
• None of the above

When a firm is operating at the point of diminishing returns, which of the following is true?

• Marginal product is zero
• Marginal product is negative
• Marginal product is at its maximum
• None of the above

ISO-cost curve shows the different combinations of:

• Input prices
• Input quantities
• Output prices
• None of the above

The slope of an ISO-cost curve represents the:

• Marginal rate of substitution between inputs
• Marginal product of labor
• Marginal cost of production
• None of the above

An ISO-cost curve shifts outward when:

• The price of one input increases
• The price of one output increases
• The production technology improves
• None of the above

The supply curve of an individual firm is ______________________, in a perfectly competitive market.

• Vertical.
• Upward sloping.
• Downward sloping.
• None of the above.

In a perfectly competitive market, long-run equilibrium occurs when:

• Economic profits are maximized.
• Economic losses are minimized.
• Marginal cost equals marginal revenue.
• Marginal cost equals average total cost.

In a perfectly competitive market, there are:

• High barriers to entry.
• Low barriers to entry.
• No barriers to entry.
• None of the above.

Monopolistic competition is a market structure in which:

• There is only one firm producing a product with no close substitutes.
• There are a few large firms dominating the market.
• There are many small firms producing differentiated products.
• There are many small firms producing identical products.

In monopolistic competition, firms have:

• Complete control over the market price.
• No control over the market price.
• Some control over the market price.
• None of the above.

The demand curve faced by an individual firm is ____________________, in monopolistic competition.

• Perfectly elastic.
• Perfectly inelastic.
• Downward sloping, but less steep than a monopoly’s demand curve.
• Upward sloping.

In monopolistic competition, firms engage in:

• Price discrimination.
• Collusion.
• Advertising and product differentiation.
• None of the above.

Firms can ______________________, in monopolistic competition.

• Enter and exit the market freely.
• Only enter the market.
• Only exit the market.
• None of the above.

In monopolistic competition, firms earn:

• Economic profits in the short run and the long run.
• Economic profits in the short run, but not the long run.
• Economic profits in the long run, but not the short run.
• No economic profits in the short run or the long run.

The point where an ISO-cost curve intersects an isoquant curve represents:

• The minimum cost of production for a given level of output
• The maximum cost of production for a given level of output
• The maximum level of output for a given cost of production
• None of the above

In monopolistic competition, the market is characterized by:

• High barriers to entry.
• Low barriers to entry.
• No barriers to entry.
• None of the above.

When input prices change, the firm will choose a new:

• Output level
• Isoquant curve
• ISO-cost curve
• None of the above

In monopolistic competition, the excess capacity of firms is due to:

• The availability of surplus resources.
• The desire to maintain product differentiation.
• The need to produce a wide variety of products.
• None of the above.

In monopolistic competition, the market is characterized by:

• A lack of competition.
• A high degree of competition.
• No competition.
• None of the above.

Which of the following is an example of a firm shifting its ISO-cost curve?

• A firm using more labor and less capital due to a decrease in the price of labor
• A firm producing more output due to an increase in the price of capital
• A firm using more raw materials due to an increase in the price of labor
• None of the above

In a perfectly competitive market structure, the number of buyers and sellers is:

• Low
• Moderate
• High
• None of the above

In a perfectly competitive market, firms are price:

• Makers
• Takers
• Influencers
• None of the above

Which of the following is an assumption of ISO-cost analysis?

• All inputs are perfectly substitutable
• The production technology is fixed
• The firm operates in a perfectly competitive market
• None of the above

In monopolistic competition, long-run equilibrium occurs when:

• Economic profits are maximized.
• Economic losses are minimized.
• Marginal cost equals marginal revenue.
• Marginal cost equals average total cost.

The demand curve faced by a perfectly competitive firm is:

• Perfectly inelastic
• Perfectly elastic
• Downward sloping
• None of the above

In a perfectly competitive market, firms can enter and exit the market:

• Easily
• With difficulty
• Indifferently
• None of the above

The price in a perfectly competitive market is determined by:

• The demand for the product
• The supply of the product
• Both a and b
• None of the above

In a perfectly competitive market, economic profits are:

• High
• Low
• Zero
• None of the above

Which of the following is true when the firm operates at the point of tangency between an isoquant curve and an ISO-cost curve?

• Marginal rate of substitution between inputs is equal to the ratio of input prices
• Marginal product of labor is equal to the price of labor
• Marginal product of capital is equal to the price of capital
• None of the above

In a perfectly competitive market, firms produce at the point where:

• Marginal cost equals average total cost
• Marginal revenue equals average total cost
• Marginal revenue equals marginal cost
• None of the above

In a perfectly competitive market, the long-run supply curve is:

• Upward sloping
• Downward sloping
• Perfectly elastic
• None of the above

Which of the following is true when a firm is operating under the law of variable proportions?

• Marginal cost is increasing
• Average total cost is decreasing
• Marginal product is increasing
• None of the above

In oligopoly, firms have:

• Complete control over the market price.
• No control over the market price.
• Some control over the market price.
• None of the above.

Which of the following is an example of a perfectly competitive market?

• The market for diamonds
• The market for oil
• The market for wheat
• None of the above

In a perfectly competitive market, there are:

• Barriers to entry and exit
• Few buyers and sellers
• High product differentiation
• None of the above

A large number of buyers and sellers exist in a perfectly competitive market. This ensures that:

• Any one buyer or seller has a significant impact on the market price.
• Buyers and sellers must engage in strategic behavior to gain market share.
• The market price is determined solely by supply and demand.
• None of the above.

In a perfectly competitive market, all firms sell:

• Homogeneous products.
• Differentiated products.
• Branded products.
• None of the above.

In a perfectly competitive market, firms have:

• No control over the market price.
• Complete control over the market price.
• Some control over the market price.
• None of the above.

Which of the following is a limitation of the law of variable proportions?

• It assumes that all inputs are perfectly divisible
• It assumes that all inputs are fixed in the short run
• It assumes that the marginal product of each input is constant
• None of the above

In a perfectly competitive market, buyers and sellers have:

• Perfect information about prices and product characteristics.
• Imperfect information about prices and product characteristics.
• No information about prices and product characteristics.
• None of the above.

In a perfectly competitive market, firms can:

• Enter and exit the market freely.
• Only enter the market.
• Only exit the market.
• None of the above.

Which of the following is an example of fixed input in the short run?

• Labor
• Raw materials
• Machinery
• None of the above

In a perfectly competitive market, firms earn:

• Economic profits in the short run and the long run.
• Economic profits in the short run, but not the long run.
• Economic profits in the long run, but not the short run.
• No economic profits in the short run or the long run.

In a perfectly competitive market, the demand curve faced by an individual firm is:

• Downward sloping.
• Upward sloping.
• Perfectly elastic.
• None of the above.

Oligopoly is a market structure in which:

• There are only a few firms producing a product with no close substitutes.
• There are many small firms producing identical products.
• There is only one firm producing a product with no close substitutes.
• There are many small firms producing differentiated products.

In oligopoly, the market is characterized by:

• High barriers to entry.
• Low barriers to entry.
• No barriers to entry.
• None of the above.

In oligopoly, firms engage in:

• Price discrimination.
• Collusion.
• Advertising and product differentiation.
• None of the above.

The behavior of oligopolistic firms is interdependent, which means:

• The decisions of one firm do not affect the decisions of other firms.
• The decisions of one firm affect the decisions of other firms.
• The decisions of one firm can completely control the market price.
• None of the above.

A cartel is a group of firms that:

• Compete fiercely with each other.
• Engage in price discrimination.
• Collude to restrict output and increase prices.
• None of the above.

Marginal product of labor is:

• The additional revenue generated by hiring an additional unit of labor.
• The additional revenue generated by selling an additional unit of output.
• The additional output generated by hiring an additional unit of labor.
• None of the above.

In an oligopolistic market, the market share of each firm is:

• Relatively small.
• Relatively large.
• Equal to the market share of other firms.
• None of the above.

In oligopoly, the demand curve faced by an individual firm is:

• Perfectly elastic.
• Perfectly inelastic.
• Downward sloping, but less steep than a monopoly’s demand curve.
• Upward sloping.

The kinked demand curve model is used to explain:

• How oligopolistic firms collude to restrict output and increase prices.
• Why oligopolistic firms engage in price discrimination.
• Why oligopolistic firms tend to maintain a stable price.
• None of the above.

Game theory is used to:

• Analyze the behavior of oligopolistic firms.
• Determine the optimal price and output for a firm in a competitive market.
• Calculate the elasticity of demand for a product.
• None of the above.

The price of a factor of production is determined by:

• The demand for the factor.
• The supply of the factor.
• Both the demand for and the supply of the factor.
• None of the above.

The demand for a factor of production is derived from the demand for:

• Final goods and services.
• Intermediate goods.
• Labor.
• None of the above.

The supply of a factor of production is derived from the supply of:

• Final goods and services.
• Intermediate goods.
• Labor.
• None of the above.

Which of the following is not a component of profit?

• Opportunity Cost
• Fixed Assets
• Total Revenue
• Total Cost

The marginal revenue product of labor is:

• The additional revenue generated by hiring an additional unit of labor.
• The additional revenue generated by selling an additional unit of output.
• The additional cost of hiring an additional unit of labor.
• None of the above.

The value of the marginal product of labor is equal to:

• The marginal cost of labor.
• The marginal revenue product of labor.
• None of the above.
• The price of the output multiplied by the marginal product of labor.

The demand for a factor of production is said to be elastic if:

• A large change in the price of the factor results in a small change in the quantity demanded of the factor.
• The price of the factor is equal to the marginal revenue product of the factor.
• None of the above.
• A small change in the price of the factor results in a large change in the quantity demanded of the factor.

The supply of a factor of production is said to be elastic if:

• The price of the factor is equal to the marginal cost of the factor.
• None of the above.
• A small change in the price of the factor results in a large change in the quantity supplied of the factor.
• A large change in the price of the factor results in a small change in the quantity supplied of the factor.

The elasticity of demand for a factor of production depends on:

• The time horizon.
• The substitutability of the factor.
• The proportion of the factor cost in the total cost of production.
• All of the above.

A firm’s labor demand curve is the same as its:

• Marginal cost of labor curve.
• None of the above.
• Marginal product of labor curve.
• Marginal revenue product of labor curve.

In a perfectly competitive factor market, a firm is a:

• Price taker.
• Price setter.
• Monopolist.
• None of the above.

Which of the following is not a type of profit?

• Economic Profit
• Marginal Profit
• Normal Profit
• Accounting Profit

Which of the following is not a method of calculating profit?

• Break-Even Analysis
• Incremental Analysis
• Marginal Analysis
• Cost-Volume-Profit Analysis

In the short run, a firm earns economic profit if:

• Accounting profit is greater than total revenue
• Accounting profit is greater than total cost
• Total revenue is greater than accounting profit
• Total revenue is greater than total cost

Which of the following is not a factor affecting the profit of a firm?

• Price of the product
• Cost of production
• Demand for the product
• Number of competitors in the market

Which of the following statements is true?

• Economic profit and accounting profit are always equal
• Economic profit can be greater or less than accounting profit
• Economic profit is always greater than accounting profit
• Accounting profit is always greater than economic profit

The marginal rate of substitution is equal to the absolute value of which of the following?

• The slope of the budget constraint
• The slope of the indifference curve
• The elasticity of demand
• None of the above

Which of the following is not a limitation of profit analysis?

• Ignores the time value of money
• Ignores the role of competition in the market
• Ignores non-monetary benefits
• Ignores non-monetary costs

Which of the following is a measure of a firm’s profitability?

• Return on Investment (ROI)
• Return on Equity (ROE)
• Gross Profit Margin
• All of the above

_____________________ is a method of measuring the profit of a firm over time.

• Break-Even Analysis
• Marginal Analysis
• Cost-Volume-Profit Analysis
• Time-Series Analysis

Which of the following is not a type of cost in profit analysis?

• Opportunity Cost
• Fixed Cost
• Variable Cost
• Sunk Cost

The rate at which a consumer is willing to exchange one good for another is known as which of the following?

• Marginal rate of substitution
• Marginal utility
• Elasticity of demand
• None of the above

Which of the following statements is true?

• Profit and revenue are the same thing
• Profit is the same thing as interest
• Profit is the difference between revenue and expenses
• Profit is the same thing as economic rent

Which of the following is not a factor that affects a firm’s profit margin?

• The price of the product
• The amount of advertising the firm does
• The cost of production
• The level of competition in the market

The point where an indifference curve is tangent to a budget constraint represents which of the following?

• The consumer’s optimal consumption bundle
• The consumer’s budget constraint
• The consumer’s indifference curve
• None of the above

Which of the following is not a method of increasing a firm’s profit margin?

• Increasing the price of the product
• Reducing the cost of production
• Increasing the level of competition in the market
• Increasing the efficiency of production

Which of the following statements is true regarding the dynamic theory of profit?

• It assumes that profit is a static concept
• It assumes that profit is a result of factors that are beyond the control of firms
• It assumes that profit is a result of a firm’s ability to innovate and adapt to changes in the market
• It assumes that profit is always negative in the long run

According to the dynamic theory of profit, which of the following is not a source of profit?

• Innovation
• Investment in capital goods
• Changes in the price of inputs
• Market power

The dynamic theory of profit suggests that ____________

• Firms in a competitive market will always earn zero economic profit in the long run
• Firms can earn economic profit in the long run if they are able to continuously innovate and adapt to changes in the market
• Economic profit is not affected by a firm’s ability to innovate
• Economic profit can only be earned in the short run

Which of the following is a limitation of the dynamic theory of profit?

• It assumes that all firms have equal access to resources and technology
• It assumes that firms will always make rational decisions
• It ignores the role of luck and chance in determining a firm’s profitability
• It assumes that all markets are perfectly competitive

The innovation theory of profit suggests that:

• Firms can earn economic profit in the long run if they are able to innovate and create new products
• Economic profit can only be earned in the short run
• Firms can earn economic profit in the long run if they have market power
• Economic profit is not affected by a firm’s ability to innovate

The Engel’s Curve shows the relationship between:

• Income and consumption of a normal good
• Price and quantity demanded of an inferior good
• Income and consumption of an inferior good
• Price and quantity demanded of a normal good

According to the Engel’s Curve, as income increases ______________ .

• Consumption of a normal good increases
• Consumption of an inferior good increases
• Consumption of both normal and inferior goods increases
• Consumption of both normal and inferior goods decreases

Which of the following is not a limitation of the Engel’s Curve?

• It assumes that all goods are either normal or inferior
• It assumes that tastes and preferences of consumers remain constant
• It ignores the effect of prices on consumption
• It assumes that there are no changes in technology or production methods

The slope of the Engel’s Curve is:

• Positive
• Negative
• Zero
• Cannot be determined

The opportunity cost of using a factor of production for one purpose is:

• The price paid for that factor of production
• The income generated by using that factor of production for another purpose
• The cost of acquiring that factor of production
• The marginal cost of producing an additional unit of output using that factor of 
• production

The shape of an ISO-cost curve is:

• Concave to the origin
• Convex to the origin
• Linear
• None of the above

An ISO-cost curve is steeper when:

• The price of labor is higher
• The price of capital is higher
• The marginal product of labor is higher
• None of the above

The factor of production that includes the ability to take risks and innovate is:

• Land
• Labor
• Capital
• Entrepreneurship

What is the slope of the demand curve?

• Positive
• Negative
• Zero
• Infinite

Which of the following factors will not shift the demand curve?

• Price of the product
• Consumer income
• Price of related goods
• Government policies

____________ is not a type of demand curve.

• Relatively elastic demand
• Perfectly inelastic supply
• Perfectly elastic demand
• Perfectly inelastic demand

The marginal rate of substitution is defined as which of the following?

• The rate at which the consumer is willing to substitute one good for another while keeping total utility constant
• The rate at which the consumer is willing to substitute one good for another while keeping marginal utility constant
• The rate at which the consumer is willing to substitute one good for another while maximizing total utility
• The rate at which the consumer is willing to substitute one good for another while maximizing marginal utility

Which of the following statements is true about the demand curve?

• It represents the quantity of a product that consumers are willing to produce at each price level.
• It is not affected by changes in consumer income.
• It shows the relationship between the price of a product and the quantity demanded by consumers.
• It is always a straight line.

What is the law of demand?

• As the price of a product increases, the quantity demanded increases.
• As the price of a product decreases, the quantity demanded increases.
• As the price of a product decreases, the quantity demanded decreases.
• As the price of a product increases, the quantity demanded decreases.