Producer Theory: Master Production, Costs, and Profit Maximization

Question 1

A production function exhibiting constant returns to scale implies that:

Accepted Answer

Doubling inputs will double output

Answer

Doubling inputs will quadruple output

Answer

Doubling inputs will halve output

Answer

Output is independent of the production scale

Question 2

The marginal cost curve:

Accepted Answer

Slopes upward as output increases

Answer

Always intersects the average total cost curve at its minimum

Answer

Always lies below the average variable cost curve

Answer

Is negative for all output levels

Question 3

Government subsidies provided to producers will:

Accepted Answer

Shift the supply curve rightward

Answer

Shift the supply curve leftward

Answer

Decrease producer profits

Answer

Have no impact on producer profits

Question 4

Which of the following is NOT a defining characteristic of a perfectly competitive market?

Accepted Answer

Firms possess substantial market power

Answer

No barriers to entry or exit

Answer

Numerous buyers and sellers

Answer

Products are standardized (homogeneous)

Question 5

Which of the following is NOT a determinant of a firm's production function?

Accepted Answer

Market demand

Answer

Technology

Answer

Capital

Answer

Labor

Question 6

Which of the following is NOT a factor that can lead to imperfect market structures?

Accepted Answer

Perfect information

Answer

Government barriers to entry

Answer

Product differentiation

Answer

Economies of scale

Question 7

Which of the following is NOT a fixed cost in the short run?

Accepted Answer

Raw materials

Answer

Rent

Answer

Utilities

Answer

Salaries of administrative staff

Question 8

The point where total revenue equals total cost is known as:

Accepted Answer

Break-even point

Answer

Profit-maximizing point

Answer

Loss-making point

Answer

Indifference point

Question 9

In a perfectly competitive market, firms are:

Accepted Answer

Price takers

Answer

Price makers

Answer

Profit maximizers

Answer

Quantity maximizers

Question 10

The long-run average cost curve:

Accepted Answer

Is U-shaped

Answer

Is always upward sloping

Answer

Is always downward sloping

Answer

Is L-shaped

Question 11

Which of the following is NOT a form of market failure?

Accepted Answer

Perfect competition

Answer

Externalities

Answer

Public goods

Answer

Natural monopolies

Question 12

The Herfindahl-Hirschman Index (HHI) is a measure of:

Accepted Answer

Market concentration

Answer

Price elasticity

Answer

Consumer surplus

Answer

Producer surplus

Question 13

Which of the following is a key assumption of the theory of the firm?

Accepted Answer

Firms aim to maximize profits within legal and ethical constraints

Answer

Firms have perfect information

Answer

Firms operate in a static environment

Answer

Firms are perfectly competitive

Question 14

How do technological advancements affect production functions?

Accepted Answer

They can reduce the amount of inputs needed to produce the same output.

Answer

They always increase fixed costs.

Answer

They have no impact on production functions.

Question 15

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

Accepted Answer

Firms have no market power.

Answer

There are few buyers and sellers.

Answer

Products are differentiated.

Answer

Firms can set prices above the market price.

Question 16

To maximize profits, a firm's output level should be set where:

Accepted Answer

Marginal cost equals marginal revenue.

Answer

Total revenue is maximized.

Answer

Fixed costs are covered.

Answer

Average total cost is minimized.

Question 17

Which factor will shift the market supply curve to the right?

Accepted Answer

A decrease in input costs.

Answer

An increase in demand.

Answer

A decline in technology.

Answer

A tax on producers.

Question 18

The law of diminishing returns implies that as more of a variable input is utilized:

Accepted Answer

The marginal product will eventually decrease.

Answer

The average total product will decrease.

Answer

The marginal product will increase indefinitely.

Question 19

Which of the following is considered an explicit cost?

Accepted Answer

Rent paid for a factory.

Answer

Implicit rent for using your own equipment.

Answer

Normal profit earned by the business owner.

Answer

Opportunity cost of investing in the business.

Question 20

The U-shape of the long-run average total cost curve arises from:

Accepted Answer

Economies and diseconomies of scale.

Answer

Variations in input prices.

Answer

Increasing marginal costs.

Answer

Changes in technology.

Question 21

A market structure in which a single firm is the sole supplier is known as:

Accepted Answer

Monopoly

Answer

Perfect competition

Answer

Oligopoly

Answer

Monopolistic competition

Question 22

The elasticity of demand measures the:

Accepted Answer

Responsiveness of the quantity demanded to changes in price.

Answer

Responsiveness of price to changes in the quantity supplied.

Answer

Responsiveness of supply to changes in price.