AP Microeconomics Practice Quiz: Firms' Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Test your understanding with short quizzes. This quiz has 9 questions to check your progress.
Question 1 of 9
All Questions (9)
A) Price is less than average variable cost.
B) Price is less than average total cost but greater than average variable cost.
C) Total revenue equals total cost.
D) The firm is experiencing accounting losses but economic profits.
Correct Answer: A
According to the provided content, a firm's short-run decision to shut down is made by comparing price to average variable cost (AVC). The firm will shut down (produce zero output) if price is less than AVC.
A) The presence of profit-making opportunities.
B) Price is equal to the minimum average variable cost.
C) Existing firms are shutting down in the short run.
D) Total revenue is equal to total variable cost for existing firms.
Correct Answer: A
The provided text explicitly states that 'in the long run... firms enter a market in which there are profit-making opportunities.'
A) total fixed costs.
B) total costs.
C) marginal costs.
D) total variable costs.
Correct Answer: D
The content specifies that firms decide to operate in the short run by 'comparing total revenue to total variable cost.' A firm will continue to operate, even at a loss, as long as its total revenue is greater than or equal to its total variable cost.
A) a shutdown is a response to price falling below average variable cost, while an exit is a response to anticipated economic losses.
B) a shutdown is a permanent decision, while an exit is a temporary measure.
C) a shutdown occurs when a firm cannot cover total costs, while an exit occurs when it cannot cover variable costs.
D) a shutdown is a long-run decision, while an exit is a short-run decision.
Correct Answer: A
The text outlines two distinct decision rules. The short-run shutdown decision is based on comparing price to average variable cost. The long-run exit decision is based on whether the firm anticipates economic losses.
A) anticipates economic losses.
B) is producing where price is less than average total cost but greater than average variable cost.
C) cannot adjust its variable factors of production.
D) observes other firms entering the market.
Correct Answer: A
The provided content clearly states that 'firms... exit a market when they anticipate economic losses.' The condition in option B would lead a firm to continue operating in the short run, but it would still exit in the long run if those losses were expected to persist.
A) all factors of production are variable.
B) firms can ignore their variable costs.
C) market prices are fixed and known.
D) profit-making opportunities are guaranteed.
Correct Answer: A
The text defines the long run as the time 'once factors that are fixed in the short run become variable.' This variability allows a firm to either acquire all necessary factors to enter or dispose of all factors to exit.
A) The firm is making a loss but should continue to produce in the short run.
B) The firm is making a loss and should shut down immediately.
C) The firm is making a profit and should increase production.
D) The firm should exit the market in the short run.
Correct Answer: A
In the short run, the firm compares price to average variable cost. Since the price ($20) is greater than the average variable cost ($18), the firm should continue to operate. Although it is making an economic loss (since P < ATC), it is covering its variable costs and contributing to its fixed costs.
A) earn zero economic profit.
B) face a price below their average variable cost.
C) constantly be either entering or exiting the market.
D) produce a positive output regardless of anticipated losses.
Correct Answer: A
This question requires an inference from the text. If firms enter when there are profits and exit when there are losses, this process will continue until the incentive to enter or exit is eliminated. This occurs when economic profits are driven to zero.
A) total fixed costs.
B) total variable costs.
C) zero.
D) marginal costs.
Correct Answer: A
The text defines shutting down as producing 'zero output.' In the short run, some factors are fixed, and the costs associated with them (fixed costs) must be paid even if output is zero. Variable costs, however, become zero when production ceases.