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AP Microeconomics Unit 3: Production, Cost, and the Perfect Competition Model

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Unit 3: Production, Cost, and the Perfect Competition Model

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Question 1

The table below shows a firm's total output as labor inputs increase, with capital fixed. Which of the following describes the law of diminishing marginal returns?

Workers	Total Output
0	0
1	10
2	22
3	30
4	36
5	40

A.Marginal product is positive for all workers listed.B.Marginal product begins to decline after the 2nd worker.C.Marginal product is constant at 8 units per worker throughout.D.Total output falls after the 4th worker is hired.

Question 2

A firm currently produces where $MC = \$ 8 $an d$ MR = $12$ . To maximize profit, the firm should:

A.Decrease output to raise price.B.Increase output until

M R = M C

.C.Keep output constant because the gap between MR and MC is already profitable.D.Shut down because MC exceeds AVC.

Question 3

In the short run, a perfectly competitive firm should continue to produce rather than shut down as long as:

A.Price is greater than average total cost.B.Price is greater than or equal to average variable cost.C.Price is greater than or equal to average fixed cost.D.Total revenue is greater than or equal to total cost.

Question 4

The long-run supply curve in a constant-cost perfectly competitive industry is:

A.Upward sloping, because more output always requires higher costs.B.Perfectly horizontal (elastic) at the minimum long-run ATC.C.Perfectly vertical (inelastic) because production capacity is fixed in the long run.D.Downward sloping, because economies of scale lower costs as the industry grows.

Question 5

A competitive firm's short-run supply curve is best represented by:

A.The entire MC curve above the minimum ATC.B.The portion of the MC curve above the minimum AVC.C.The ATC curve above the minimum ATC.D.The MC curve below the minimum AVC, where the firm is most efficient.

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Question 6

In perfect competition, which of the following best characterizes average fixed cost (AFC) as output increases?

A.AFC rises as more units share the overhead cost.B.AFC is constant because fixed costs do not change with output.C.AFC declines continuously and approaches zero as output increases.D.AFC eventually rises because fixed costs become more burdensome at high output.

Question 7

In the long run, perfectly competitive industries tend toward an equilibrium at which each firm:

A.Earns maximum economic profit through price leadership.B.Earns zero economic profit, with

P = M R = M C = A T C

.C.Earns zero accounting profit because all costs are variable in the long run.D.Shuts down because competition drives price below variable costs.

Question 8

A firm's total fixed cost is $200 an d i t s t o t a l v a r iab l ecos t a t 10 u ni t so f o u tp u t i s$ 300. What is the average total cost (ATC) at 10 units?

A.$20B.$30C.$50D.$500

Question 9

Which statement accurately distinguishes explicit costs from implicit costs?

A.Explicit costs are variable; implicit costs are fixed.B.Explicit costs involve direct money payments; implicit costs are opportunity costs of owned resources.C.Explicit costs are included in economic profit calculations but implicit costs are not.D.Implicit costs are always larger than explicit costs for any firm.

Question 10

A perfectly competitive firm has $P = \$ 15 $,$ ATC = $18$ , and $AVC = \$ 12$ at the profit-maximizing quantity. What is the firm's economic situation?

A.The firm earns a positive economic profit and will expand output.B.The firm incurs a loss but should continue to produce in the short run.C.The firm incurs a loss and should immediately shut down.D.The firm earns zero economic profit (break-even point).

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Question 11

Which of the following correctly describes a firm's marginal cost curve in relation to its production function?

A.MC rises continuously from the first unit because inputs always cost more as output expands.B.MC is the mirror image of the marginal product curve; when MP rises, MC falls.C.MC equals average variable cost at all output levels.D.MC is unrelated to the marginal product of labor because costs and production are separate decisions.

Question 12

As output increases, what is the relationship between marginal cost (MC) and average variable cost (AVC)?

A.MC is always above AVC.B.MC equals AVC at every output level.C.When MC is below AVC, AVC is falling; when MC is above AVC, AVC is rising.D.AVC falls whenever output increases, regardless of the level of MC.

AP Microeconomics Unit 3: Production, Cost, and the Perfect Competition Model — Free with Answer Explanations | Test Practice Hub