Economics MCQ Exam: Chapter 6 - The Production Process and Firm
Behavior
1. What is production in economic terms?
a) The process of buying goods and services
b) The process by which inputs are combined, transformed, and
turned into outputs
c) The act of selling goods in the market
d) The distribution of profits among shareholders
2. What is a firm primarily established to achieve?
a) To meet government regulations
b) To produce goods and services for perceived demand
c) To provide jobs to the community
d) To engage in charitable activities
3. Which of the following best describes perfect competition?
a) An industry with one dominant firm controlling prices
b) An industry where many firms produce virtually identical products
and no single firm controls prices
c) An industry with high barriers to entry
d) An industry dominated by a few large firms
4. In input markets, what do firms primarily demand?
a) Finished goods
b) Factors of production
c) Consumer preferences
d) Government subsidies
5. What does profit maximization imply for a firm?
a) Minimizing costs while ignoring revenue
b) Maximizing the difference between total revenue and total cost
c) Focusing solely on increasing sales volume
d) Ignoring market demand and focusing on production
6. Which of the following is not a factor of production?
a) Labor
b) Capital
c) Money
d) Land
7. What is the role of an entrepreneur in a firm?
a) To manage day-to-day operations only
b) To organize, manage, and assume the risks of the firm
c) To provide labor for production
d) To regulate the firm’s compliance with laws
8. Which of the following industries is most likely to exhibit perfect
competition?
a) Automobile manufacturing
b) Agriculture
c) Telecommunications
d) Pharmaceuticals
9. What happens when a firm operates in a perfectly competitive
market?
a) It can set its own prices
b) It is a price taker and cannot influence market prices
c) It focuses on product differentiation
d) It collaborates with other firms to control supply
10. What is the primary goal of a profit-maximizing firm?
a) To maximize revenue
b) To minimize costs
c) To maximize the difference between total revenue and total cost
d) To maximize market share
11. Which of the following best describes an isoquant?
a) A curve showing all combinations of inputs that yield the same level
of output
b) A line representing the budget constraint of a firm
c) A graph showing the relationship between price and quantity
demanded
d) A curve depicting consumer preferences
12. What is an isocost line?
a) A line showing all combinations of inputs that can be purchased for
a given total cost
b) A curve showing the maximum output a firm can produce
c) A graph representing consumer utility
d) A line depicting the marginal cost of production
13. What does the slope of an isoquant represent?
a) The marginal rate of substitution between two goods
b) The marginal rate of technical substitution between two inputs
c) The ratio of input prices
d) The elasticity of demand
14. What is the marginal rate of technical substitution (MRTS)?
a) The rate at which one input can be substituted for another while
keeping output constant
b) The rate at which output increases with additional input
c) The rate at which costs increase with additional production
d) The rate at which prices change in the market
15. What does the point of tangency between an isoquant and an
isocost line represent?
a) The least-cost combination of inputs for a given level of output
b) The maximum output a firm can produce
c) The equilibrium price in the market
d) The point of maximum profit
16. Which of the following is true about the law of diminishing
marginal returns?
a) As more of one input is added, holding other inputs constant, total
output decreases
b) As more of one input is added, holding other inputs constant,
marginal output eventually decreases
c) As more of one input is added, total costs decrease
d) As more of one input is added, marginal costs decrease
17. What is the short run in production theory?
a) A period where all inputs are variable
b) A period where at least one input is fixed
c) A period where no production occurs
d) A period where all inputs are fixed
18. What is the long run in production theory?
a) A period where all inputs are fixed
b) A period where at least one input is fixed
c) A period where all inputs are variable
d) A period where production is halted
19. What is the production function?
a) A mathematical representation of the relationship between inputs
and outputs
b) A graph showing the demand for a product
c) A table listing the costs of production
d) A curve showing the supply of a product
20. Which of the following is not a characteristic of perfect
competition?
a) Many small firms
b) Identical products
c) High barriers to entry
d) No single firm can influence prices
21. What is the difference between explicit and implicit costs?
a) Explicit costs are direct payments, while implicit costs are
opportunity costs
b) Explicit costs are opportunity costs, while implicit costs are direct
payments
c) Explicit costs are fixed, while implicit costs are variable
d) Explicit costs are variable, while implicit costs are fixed
22. What is economic profit?
a) Total revenue minus explicit costs
b) Total revenue minus implicit costs
c) Total revenue minus both explicit and implicit costs
d) Total revenue minus fixed costs
23. What is the relationship between average product (AP) and
marginal product (MP)?
a) AP increases as long as MP is above it
b) AP decreases as long as MP is below it
c) Both a and b
d) None of the above
24. What is the significance of the point where marginal cost equals
marginal revenue?
a) It represents the profit-maximizing level of output
b) It indicates the shutdown point for the firm
c) It shows the break-even point for the firm
d) It signifies the minimum efficient scale
25. What is the shutdown point for a firm in the short run?
a) The point where price equals average total cost
b) The point where price equals average variable cost
c) The point where price equals marginal cost
d) The point where price equals average fixed cost
Note: This exam consists of 25 multiple-choice questions based on
Chapter 6 and supplemented by general economic principles. Each
question aligns with the American system of testing,
