Production, Cost and Theory of the Firm MCQs 2026

Average product (AP) is

1. Achange in TP✓
2. Bprice times quantity✓
3. CMC at minimum✓
4. Dtotal product divided by units of the variable input✓

If MR < MC, the firm should

1. Aexpand output✓
2. Breduce output✓
3. Cignore costs✓
4. Dset Q to infinity✓

In perfect competition, MR equals

1. AAC always✓
2. Bprice (AR)✓
3. CAFC✓
4. Dzero always✓

MP intersects AP at

1. Athe minimum of AP✓
2. Bthe maximum of the AP curve✓
3. Czero output✓
4. Dinfinite AP✓

A production function shows

1. Aonly market demand✓
2. Bonly money costs✓
3. Cmaximum output obtainable from given inputs✓
4. Donly consumer utility✓

In the short run

1. Aall inputs are variable✓
2. Bat least one input is fixed✓
3. Cno production is possible✓
4. DMC is always zero✓

In the long run

1. Acapital is always fixed✓
2. Blabour cannot change✓
3. Ccosts are only sunk✓
4. Dall inputs are variable✓

The law of variable proportions (diminishing returns) states that

1. AMP always rises forever✓
2. Breturns to scale always diminish in short run✓
3. CAC is always falling✓
4. Das more of a variable factor is added to a fixed factor, MP eventually falls✓

Total product (TP) is

1. Aextra output from one more unit✓
2. Btotal output from a given amount of the variable input✓
3. Coutput per worker only✓
4. Drevenue minus cost✓

Marginal product (MP) is

1. ATP divided by price✓
2. Bthe change in total product from one more unit of input✓
3. CAC minus AVC✓
4. Dfixed cost✓

Stage II of production (rational stage) is where

1. AMP is negative✓
2. BAP is rising and MP > AP✓
3. CAP is falling but MP is still positive✓
4. DTP is falling✓

An isoquant shows

1. Ainput combinations that yield the same output✓
2. Bsame cost✓
3. Csame utility for consumers✓
4. Dsame price✓

Isoquants are typically

1. Aupward sloping✓
2. Bhorizontal always✓
3. Ccircular✓
4. Ddownward sloping and convex to the origin✓

The marginal rate of technical substitution (MRTS) is

1. Athe slope of the isocost only✓
2. BMC/AC✓
3. Cthe rate at which one input can replace another keeping output constant✓
4. Dprice elasticity✓

An isocost line shows

1. Ainput combinations that cost the same total outlay✓
2. Bsame output levels✓
3. Csame utility✓
4. Dsame MP✓

Cost-minimizing input choice occurs where

1. Aisoquant is tangent to isocost (MRTS = w/r)✓
2. BMP is zero✓
3. Cisoquant crosses isocost twice always✓
4. Dprice equals AR✓

Returns to scale refer to

1. Aonly short-run MP✓
2. Boutput response when all inputs change proportionately✓
3. Conly fixed costs✓
4. Donly demand elasticity✓

Increasing returns to scale mean

1. Aoutput rises less than inputs✓
2. Boutput unchanged✓
3. Coutput rises more than proportionately to inputs✓
4. DMP negative✓

Constant returns to scale mean

1. Aoutput doubles when inputs rise 10%✓
2. BMP is zero✓
3. CAC rises always✓
4. Doutput rises in the same proportion as inputs✓

Decreasing returns to scale mean

1. Aoutput rises more than inputs✓
2. Boutput rises less than proportionately to inputs✓
3. Cno fixed factors exist✓
4. DMC is below AVC always✓

Total fixed cost (TFC)

1. Ais zero at all outputs✓
2. Bdoes not vary with output in the short run✓
3. Cequals MC✓
4. Drises then falls with Q✓

Total variable cost (TVC)

1. Avaries with the level of output✓
2. Bis constant at all Q✓
3. Cequals TFC always✓
4. Dis sunk forever✓

Total cost (TC) equals

1. ATFC + TVC✓
2. BTFC − TVC✓
3. CMC × AC✓
4. Donly AFC✓

Average fixed cost (AFC)

1. Arises continuously✓
2. Bis U-shaped like MC✓
3. Cequals MC at minimum✓
4. Dfalls continuously as output rises✓

Average variable cost (AVC) is

1. ATVC divided by output✓
2. BTFC/Q✓
3. CMC − AC✓
4. Dprice − MR✓

Average total cost (ATC or AC) is

1. ATC/Q or AFC + AVC✓
2. Bonly MC✓
3. Conly TFC✓
4. DMR − MC✓

Marginal cost (MC) is

1. ATFC/Q✓
2. Bprice elasticity✓
3. Cthe addition to total cost from producing one more unit✓
4. Daverage product✓

The MC curve intersects the AC curve at

1. AAC's maximum✓
2. BAFC's maximum✓
3. CAC's minimum point✓
4. Dzero output only✓

MC also intersects AVC at

1. AAVC's minimum✓
2. BAVC's maximum✓
3. CTFC✓
4. DAFC min✓

The short-run AC curve is typically

1. Aalways downward sloping forever✓
2. Bhorizontal always✓
3. Cupward from origin linearly only✓
4. DU-shaped✓

The long-run average cost (LRAC) is

1. Aan envelope of short-run AC curves✓
2. Balways above all SRAC✓
3. Cidentical to MC always✓
4. Dequal to AFC✓

Economies of scale cause

1. ALRAC to rise✓
2. BLRAC to fall as output expands✓
3. CMC to equal price always✓
4. Dfixed costs to vanish in short run✓

Diseconomies of scale cause

1. ALRAC to fall forever✓
2. BLRAC to rise at high output levels✓
3. CMP to rise forever✓
4. DAFC to rise✓

Sunk costs are

1. Aalways equal to MC✓
2. Bvariable in the short run always✓
3. Ccosts that cannot be recovered once incurred✓
4. Dthe same as opportunity costs of all decisions ahead✓

Opportunity cost of a resource to the firm is

1. Aonly the historical purchase price✓
2. Balways zero for owned capital✓
3. Conly explicit wages✓
4. Dthe value in its best alternative use✓

Accounting profit ignores

1. Aimplicit (opportunity) costs that economists include✓
2. Ball explicit costs✓
3. Crevenue✓
4. Dtaxes always✓

Normal profit is

1. Athe minimum return needed to keep the entrepreneur in the industry (zero economic profit)✓
2. Bmaximum monopoly profit✓
3. Calways negative✓
4. Dequal to TFC only✓

A firm maximizes profit where

1. AMR = MC (and MC is rising)✓
2. BAC is maximum✓
3. CAFC is maximum✓
4. DTR is minimum✓

If MR > MC, a competitive firm should

1. Adecrease output✓
2. Bshut down always✓
3. Cset P = AC always✓
4. Dincrease output✓

The shutdown rule in the short run is

1. Aproduce only if P ≥ ATC always✓
2. Bshut down if P > MC✓
3. Cproduce if P ≥ AVC; shut down if P < AVC✓
4. Dproduce if TR < TVC✓

In the long run, a competitive firm produces if

1. AP < AVC✓
2. BMC is below AVC✓
3. Cprice covers average total cost (including normal profit)✓
4. Dfixed costs are ignored forever✓

The firm's short-run supply curve (competition) is

1. Athe AC curve below AVC✓
2. Bthe AFC curve✓
3. Cthe demand curve✓
4. Dthe MC curve above AVC✓

Profit is maximized in terms of TR and TC where

1. ATR is maximized regardless of TC✓
2. Bthe gap TR − TC is greatest (slopes equal: MR = MC)✓
3. CTC is maximized✓
4. DAC equals AFC✓

Average revenue (AR) is

1. AMC✓
2. BTFC✓
3. CMP✓
4. DTR divided by quantity (price for a single price)✓

Diminishing returns are a

1. Along-run returns to scale only✓
2. Bdemand-side only✓
3. Cmonetary phenomenon only✓
4. Dshort-run phenomenon with a fixed factor✓

The ridge lines on an isoquant map

1. Ashow isocosts only✓
2. Bequal AC and MC✓
3. Cbound the economic region of production where MPs are non-negative✓
4. Dtrace demand✓

Homogeneous production function of degree one exhibits

1. Aincreasing returns only✓
2. Bdecreasing returns only✓
3. Cconstant returns to scale✓
4. Dzero MP✓

Cobb–Douglas production Q = A L^a K^b has returns to scale determined by

1. Aonly A✓
2. Bonly L✓
3. Conly prices✓
4. Da + b✓

Explicit costs are

1. Aonly implicit rents✓
2. Bout-of-pocket payments to outsiders✓
3. Csunk forever by definition✓
4. Dequal to consumer surplus✓

Implicit costs include

1. Aonly cash wages to workers✓
2. Bforgone earnings on owner-supplied resources✓
3. Conly tax remittances✓
4. Donly depreciation by law always✓

The relationship MC = w / MPL (for labour) shows

1. Aprice equals wage always✓
2. BAC equals wage✓
3. CMRTS equals one✓
4. Dmarginal cost linked to wage and marginal product✓

When MP is rising, MC is

1. Afalling✓
2. Brising✓
3. Cconstant at TFC✓
4. Dequal to AFC✓

When MP is falling, MC is

1. Arising✓
2. Bfalling✓
3. Czero✓
4. Dequal to price always✓

Break-even output is where

1. AP = AVC only✓
2. BMR = 0✓
3. CTR equals TC (or P = AC)✓
4. DMC = AFC✓

Capacity output in cost theory often refers to

1. Aoutput at minimum AC✓
2. Bzero output✓
3. Cinfinite output✓
4. Dwhere AFC is max✓

X-inefficiency refers to

1. Aperfect cost minimization✓
2. Bfailure to minimize costs due to lack of competitive pressure✓
3. Conly external economies✓
4. Donly diminishing returns✓

External economies of scale arise from

1. Aonly one firm's internal reorganization✓
2. Bhigher input prices only✓
3. Cindustry-wide advantages as the industry grows✓
4. Dtax increases✓

The planning curve is another name for

1. Athe demand curve✓
2. Bthe short-run MC only✓
3. Cthe long-run average cost curve✓
4. Dthe PPF✓

Fixed factors in the short run create

1. Azero opportunity cost✓
2. Bperfectly elastic supply always✓
3. Cfixed costs and the basis for diminishing returns✓
4. Dconstant MP forever✓

Profit maximization is equivalent to loss minimization when

1. ATR is always maximized alone✓
2. BAC is maximized✓
3. Cprice is zero✓
4. Dthe firm produces where MR = MC even if economic profit is negative (but covering AVC)✓