Economics Quiz

Which diagram correctly shows the relationship between the average product (AP) and the marginal product (MP) of labour, given that the quantities of other factor inputs remain constant?

• Diagram A

• Diagram B

• Diagram C

• Diagram D

A firm operates at the maximum point on its average product curve. What necessarily follows?

• Average variable cost is at a minimum.

• Marginal cost is at a minimum.

• Marginal product is at a maximum.

• Total profit is at a maximum.

What can be concluded from the demand curve diagram?

• Marginal revenue always has a positive value over the whole range of prices.

• Marginal revenue is equal to average revenue at P₁.

• The elasticity of demand is constant regardless of the price of the good.

• Total revenue initially increases as price falls from P₁, but at some point it will decrease.

What does the firm experience as it increases output from Q1 to Q2?

• decreased average variable cost

• diminishing returns

• economies of scale

• increased profit

What is the value of the price elasticity of demand for the product at outputs Q1, Q2, and Q3?

• Q1: equal to 1, Q2: less than 1, Q3: greater than 1

• Q1: greater than 1, Q2: equal to 1, Q3: less than 1

• Q1: greater than 1, Q2: less than 1, Q3: equal to 1

• Q1: less than 1, Q2: equal to 1, Q3: greater than 1

The diagram shows the short-run cost curves and the long-run average cost curve for a firm. What can be concluded from the diagram?

• At output Q1, point E represents a productively efficient position.

• At output Q1, point F is preferred to point E because curve AC2 represents economies of scale.

• Point G at output Q2 is productively efficient in the long run.

• The biggest profits are made at point H at output Q3, which is the lowest marginal cost position.

What is true about the average fixed costs of a firm?

• They fall as output rises at first, but then rise.

• They fall continuously as output rises.

• They increase continuously as output rises.

• They remain unchanged at all output levels.

Which concept describes the situation where Firm X can either act independently or work with its rival, with varying profits?

• contestable market

• kinked demand curve

• principal agent problem

• prisoner's dilemma

What describes the pricing method where a firm operates in an imperfectly competitive market, and prices are determined by the maximum price each consumer is willing to pay?

• kinked demand curve

• limit pricing

• price discrimination

• price leadership

A government divides a nationalised rail service and sells it to five private companies. The largest of these companies dominates the four smaller companies. How will these changes affect the market structure for rail services?

• It will change from monopoly to monopolistic competition.

• It will create an oligopoly with the possibility of price leadership.

• It will encourage freedom of entry due to lower capital costs.

• It will guarantee ticket prices based on average costs.