MCQs on Production and Production Function
1. What is the production function?
a) The relationship between input prices and output quantity
b) The relationship between inputs and the maximum output they can produce
c) The relationship between costs and revenues
d) The relationship between demand and supply
Answer: b)
2. What happens to total product (TP) during the second stage of production?
a) It increases at an increasing rate
b) It increases at a decreasing rate
c) It decreases
d) It remains constant
Answer: b)
3. Marginal product (MP) is defined as:
a) The total output produced by all inputs
b) The output produced per unit of input
c) The additional output produced by using one more unit of input
d) The cost of producing one additional unit of output
Answer: c)
4. When average product (AP) is at its maximum, marginal product (MP) is:
a) Greater than AP
b) Equal to AP
c) Less than AP
d) Zero
Answer: b)
5. What is the primary characteristic of the first stage of production?
a) Total product is declining
b) Marginal product is negative
c) Marginal product is positive and increasing
d) Marginal product is positive but decreasing
Answer: c)
6. What does diminishing marginal returns imply?
a) Increasing input always increases output
b) Adding more of a variable input to fixed inputs eventually reduces marginal output
c) Marginal product becomes negative
d) Total product decreases immediately
Answer: b)
7. When marginal product (MP) is negative:
a) Total product is increasing
b) Total product is decreasing
c) Average product is increasing
d) Average product is at its maximum
Answer: b)
8. The law of diminishing marginal returns applies when:
a) Only fixed inputs are used
b) Variable inputs are added to at least one fixed input
c) All inputs are variable
d) The scale of production is increased
Answer: b)
MCQs on Cost, Revenue, and Profit
9. What is total cost (TC)?
a) The cost per unit of output
b) The sum of fixed and variable costs
c) The additional cost of producing one more unit
d) The difference between revenue and profit
Answer: b)
10. What is the formula for average cost (AC)?
a) TC × Q
b) TC ÷ Q
c) Fixed Cost ÷ Q
d) Variable Cost ÷ Q
Answer: b)
11. What is marginal cost (MC)?
a) Total cost divided by output
b) The additional cost of producing one more unit of output
c) The difference between total revenue and total cost
d) The cost of all inputs
Answer: b)
12. When marginal cost is less than average cost, average cost will:
a) Increase
b) Decrease
c) Remain constant
d) Be equal to marginal cost
Answer: b)
13. What is total revenue (TR)?
a) The revenue earned per unit of output
b) The total sales revenue, calculated as price × quantity
c) The difference between price and cost
d) The profit earned from all units sold
Answer: b)
14. What happens to marginal revenue (MR) when price is constant in a perfectly
competitive market?
a) MR equals total revenue
b) MR increases with quantity
c) MR is equal to price
d) MR becomes negative
Answer: c)
15. Profit is defined as:
a) Total cost minus total revenue
b) Total revenue minus total cost
c) Total revenue minus variable cost
d) Average revenue minus average cost
Answer: b)
16. When marginal cost (MC) equals marginal revenue (MR), the firm:
a) Minimizes cost
b) Maximizes profit
c) Breaks even
d) Experiences diminishing returns
Answer: b)
17. In which situation is a firm likely to shut down in the short run?
a) Total revenue is greater than variable cost
b) Marginal cost equals marginal revenue
c) Total revenue is less than variable cost
d) Fixed costs exceed total revenue
Answer: c)
18. Average revenue (AR) is calculated as:
a) Total revenue divided by output
b) Total cost divided by output
c) Marginal revenue divided by output
d) Price minus marginal cost
Answer: a)
19. When total cost equals total revenue, the firm is:
a) Maximizing profit
b) Breaking even
c) Incurring a loss
d) Experiencing diminishing returns
Answer: b)
20. In the long run, a firm should continue producing only if:
a) Total revenue is greater than fixed costs
b) Total revenue is greater than variable costs
c) Total revenue is greater than total cost
d) Marginal cost is less than average cost
Answer: c)
