AP Economics:
Costs and Perfect Competition Review MCs
April 28, 2015
1. Which of the following is correct?
a. AVC is the change in total cost generated by one additional unit of output
b. MC = TC/Q
c. The average cost curve crosses at the minimum of the marginal cost curve
d. The AFC curve slopes upward
e. AVC = ATC - AFC
2. Which of the following statements is generally true?
i. The long-run average cost curve is U-shaped
ii. The short-run average cost curve is U-shaped
iii. Firms tend to experience economies of scale at low levels of production
and diseconomies of scale at high levels of production
a. i only
b. ii only
c. iii only
d. i and ii only
e. i, ii and iii
3. Which of the following is true for a perfectly competitive industry?
i. There are many firms, each with a large market share
ii. The firms in the industry produce a standardized product
iii. There are barriers to exit and entry
a. i only
b. ii only
c. iii only
d. i and ii only
e. i, ii and iii
4. Which of the following will happen in response if perfectly competitive firms are earning
positive economic profit?
a. Firms will exit the industry
b. The short-run industry supply curve will shift right
c. The short-run industry supply curve will shift left
d. Firm output will increase
e. Market price will increase
5. If the marginal product of labor per dollar is greater than the marginal product of capital
per dollar, which of the following is true? The firm should
a. not change its employment of capital and labor
b. hire more capital
c. hire more labor
d. hire less labor
e. hire more capital and labor
6. Average fixed cost is shown as the vertical distance between
a. Marginal cost and average variable cost
b. Marginal cost and average total cost
c. Average variable cost and average total cost
d. Average total cost and the horizontal axis
e. Marginal cost and the horizontal axis
7. Assume that perfectly competitive firm is operating where marginal revenue is greater
than marginal costs. To increase total profits, the firm should
a. Increase production
b. Decrease production
c. Increase price
d. Decrease price
e. Do nothing
8. If the average variable cost of producing five units of a product is $100 and the average
variable cost of producing six units is $125, then the marginal cost of producing the sixth
unit is
a. $25
b. $125
c. $250
d. $500
e. $750
9. For a perfectly competitive firm, if the market price is $8, then
a. Marginal revenue is greater than $8
b. Marginal revenue is less than $8
c. Marginal revenue is $8
d. Average revenue is greater than $8
e. Average revenue is less than $8
10. A firm should continue to produce in the short run as long as price is at least equal to
a. MR
b. MC
c. Minimum ATC
d. Minimum AVC
e. AFC