Managerial Economics Quiz

1. Implicit costs are opportunity costs of using the resources of .

a) Outsiders
b) Owners
c) Banks
d) Other financial institutions
2. Which of the following equations is true?
a) Economic profit = Total revenue accounting cost
b) Economic profit = Total revenue (explicit cost accounting profit)
c) Economic profit = Total revenue Implicit costs
d) Economic profit = Total revenue (explicit + implicit costs)
3. If the units of variable inputs in the production process are 1,2,3,4, and 5 and the
corresponding total outputs are 10,22,33,42 and 48,respectively,the marginal product of
the fourth unit is:
a) 2
b) 6
c) 9
d) 42
4. The total fixed cost curve is :
a) Upward sloping
b) Downward sloping
c) Upward sloping and then downward sloping
d) Unchanged with the level of output.
5. The downward sloping segment of the long run average cost curve corresponds to:
a) Diseconomies of scale
b) Both economies and diseconomies of scale
c) Decrease in average variable costs
d) Economies of scale.
6. An increase in TFC,when P and AVC remaining the same leads to:
a) Increase in number of units of output to break even
b) Decline in number of units of output to break even
c) No change in break even output
d) None of the above
7. At the break even point, Total contribution is equal to:
a) Selling price Average variable cost
b) TFC
c) Selling price TFC
d) Profits
8. The production function:

a) shows the level of utility at each level of consumption.

b) shows the quantity produced at each price.
c) shows the maximum output that can be produced with a given quantity of
inputs.
d) shows the different possible bundles of two goods that can be produced when
resources are fully employed.
9. We get fewer and fewer additional units as we add more and more units of the inputs to
production process. We call this fact the:
a) law of diminishing marginal utility.
b) law of diminishing returns.
c) law of supply.
d) law of demand.
10. _______ arise when an increase in all inputs leads to a more-than-proportional increase in
the level of output. ______ means that as inputs are added to the production process,
output increases proportionally
.
a) economies of scale; constant returns to scale
b) constant returns to scale; decreasing returns to scale
c) decreasing returns to scale; economies of scale
d) economies of scale; decreasing returns to scale.
11. In the _______ run, firms can only adjust the variable factors of production. In the
_______ run, firms are able to change all of the factors of production including capital.
a. long; short
b. medium; short
c. short; long
d. none of the above.
12. Which of the following is considered a fixed input to production in the short-run?
a. labor
b. plant size
c. money
d. raw materials.

13. Using three units of labor, the firm can produce 1500 units of the good. Using four units
of labor, the firm can produce 2000 units of the good. The AVERAGE product of the
fourth unit of labor is:
a. 100
b. 1500
c. 2000
d. 500
14. The total amount of output produced is called:
a. total supply.
b. total product.
c. both a and b.
d. none of the above
15. Which of the following formulas is correct?
a. AVC = (TC-TFC)/Q
b. AVC = FC/Q
c. AVC = TC/Q
d. AVC = (MC*Q-FC)/Q
16. When marginal cost is above average cost, average cost is _______. Marginal cost will
cross average cost at the point where: _______.
a. decreasing; average cost is at its minimum
b. increasing; average cost is at its maximum
c. increasing; average cost is at its minimum
d. decreasing; average cost is at its maximum
17. Average fixed cost equals:
a. fixed cost divided by total output.
b. the change in fixed cost divided by total output.
c. total cost divided by fixed cost.
d. total cost minus variable cost
18.

Two curves that remain parallel as the quantity of output increases are:
a)
b)
c)
d)
e)

total fixed cost and total variable cost.

total cost and total variable cost.
average fixed cost and average variable cost.
average total cost and average fixed cost.
average total cost and average variable cost.

19. A price ceiling _____________________________.

a) makes it illegal to charge a higher price than specified
b) is necessary to maintain market equilibrium
c) occurs in housing markets only
d) makes it illegal to charge a lower price than specified

20. If the demand for an agricultural good is inelastic, then a bumper harvest results in a
lower price and farm revenue will _________________.
a) Decrease
b)

Increase

c)

either remain constant or increase

d)

remain constant

21. A minimum wage _______________________.

a)

is a price ceiling in the labor market

b)

decided by the market

c)

decided by the trade unions

d) is a price floor in the labor market

22. Marginal cost is the increase in total__________
a) fixed cost
b) production
c) revenue
d) cost
23. In economics, the short run is the time frame in which ______________ and the long run
is the period of time in which ______________.
a) all resources are variable but technology is fixed, technology is variable

b)

some resources are variable, all resources are fixed

c)

all resources are fixed, all resources are variable

d) some resources are fixed, all resources are variable

24. When a firm experiences diseconomies of scale, its __________________ cost curve
slopes ____________.
a)
b)
c)
d)

short-run average total; downward

long-run average; upward
short-run marginal cost; downward
long-run average; downward

25. If all inputs are increased by 5 percent and output increases by 8 percent, then all the
following are true except ______________________.
a) the firm experiences economies of scale
b) the long-run average cost curve slopes downward
c) the long-run average cost curve shifts downward
d) the firm experiences increasing returns to scale
26. Per unit revenue from the sale of output is represented by
a) MR
b) AR
c) TR
d) None of the above.
27. Margin of safety represents the difference between:
a) Total revenue and total cost
b) Price and average variable cost
c) Actual sales and break even sales
d) Sales and total variable cost
28. What is the shut down rule?
a) P= AC
b) P < AC
c) P >AVC
d) P <AVC
29.
If TR = 20Q and TC= 100+10Q, what is the breakeven output?
a) 20
b) 10
c) 15
d) 5
30. Which of the following statements is not true about survey method of demand
forecasting?
a) Based on the future intentions of buyers purchase plans

b) Short term method of demand forecasting

c) Long term method of demand forecasting
d) Complete enumeration and sample survey are examples of this method
31. Which of the following is not an example of direct interview method?
a) Complete Enumeration Method
b) Sample Survey Method
c) End Use Method
d) Delphi method
32. If you have information about the sales in the current year and previous year, which is the
best demand forecasting method?
a) Trend analysis
b) 3 year moving average
c) Ratio method
d) Expert opinion method
33. Unemployment rate is an example of .
a) Leading indicator
b) Lagging indicator
c) Coincidental indicator
d) Barometric indicator
34. For zero output .. and .. are the same
a) TVC & TC
b) AVC & AC
c) TFC & TC
d) TVC & TFC
35. Change in TC happens due to change in ..
a) MC
b) AC
c) TVC
d) AVC
36. . Curve declines continuously when output increases
a) TFC
b) TC
c) AFC
d) MC
37. Which of the following is true in the case of a positive externality?
a) MSB <MSC
b) MSB >MSC

c) MSC >MPC
d) MEC >0
38. Which of the following statement is not true in the case of negative externality
a) It leads to over production of the commodity
b) It leads to under production of the commodity
c) MSC > MPC
d) MEC > 0
39. Which of the flowing statement is not true in the case of the law of variable proportions?
a) It explains the changes in output, when some factors of production are fixed and
some are variable.
b) It explains the changes in AR, MR, TR due to change in the number of units
of the variable factor.
c) It is an example of short run production function
d) This law is divided into 3 stages
40. The marginal product of labor is equal to
a) the additional labor required to produce one more unit of output.
b) average product when average product is at a minimum.
c) the additional output produced by hiring one more unit of labor
d) Addition to total cost due to the employment of an additional unit of input
41. Which of the following statement is true about an isoquant?
a. An isoquant Further from the origin represents greater output
b. Shows combinations of two commodities
c. Points on the same isoquant show different levels of satisfaction
d. A geometrical device used to identify consumers equilibrium.
42. The combination of inputs is optimal
a) at points of tangency between isoquants and isocost lines.
b) the marginal revenue product is equal to the marginal resource cost for all inputs
c) if the marginal rate of technical substitution between every pair of inputs is equal
to the ratio of the prices of those inputs.
d) All of the above are correct.
43. A line that connects all points where the marginal rate of technical substitution is equal to
the ratio of input prices is called the
a) input demand curve
b) total product curve.
c) expansion path.

d) isocost line.
44. Which of the following statement is not true about price ceiling
a) It is a form of government intervention in the market
b) It aims at protecting the interests of the consumers
c) It sets a maximum limit for the price of a commodity
d) It aims at protecting the interests of the producers.
45. Slope of an isoquant is known as
a)
b)
c)
d)

MRS
MRTS
Factor price ratio
Average product