AP Microeconomics Unit 3 Practice Test & Exam | 22 Questions

Questions 1-3 refer to the table below, which shows the production function for a firm that uses labor as its only variable input.

1. What is the marginal product of the third worker?

(A)10 units(B)15 units(C)25 units(D)35 units

2. The firm experiences diminishing marginal returns to labor beginning with which worker?

(A)The second worker(B)The third worker(C)The fourth worker(D)The sixth worker

3. If the firm pays each worker a wage of $100 per day and has fixed costs of $200 per day, the marginal cost of increasing output from 35 to 42 units is approximately

(A)$7.00(B)$14.29(C)$23.81(D)$100.00

Questions 4-7 refer to the graph below, which shows the short-run cost curves for a typical firm.

4. The vertical distance between the average total cost curve and the average variable cost curve at any given quantity represents

(A)marginal cost(B)total fixed cost(C)average fixed cost(D)economic profit

5. Which of the following explains the shape of the marginal cost curve shown in the graph?

(A)Economies and diseconomies of scale(B)The law of demand(C)Increasing and then diminishing marginal returns(D)The relationship between accounting and economic profit

6. If the price of the variable input used to produce this good increases, which of the following will occur?

(A)The marginal cost curve will shift down.(B)The average fixed cost curve will shift up.(C)The average total cost curve will shift up.(D)The average total cost curve will not change.

7. At an output level of Q1, if the marginal cost is below the average total cost, then

(A)average total cost must be increasing.(B)average total cost must be decreasing.(C)average fixed cost must be increasing.(D)total cost must be decreasing.

Questions 8-10 refer to the graph below, which shows the cost and revenue curves for a perfectly competitive firm.

8. To maximize profit, this firm should produce what level of output?

(A)The quantity where price equals average total cost.(B)The quantity where marginal cost equals average total cost.(C)100 units.(D)More than 100 units.

9. At the profit-maximizing level of output, the firm's total economic profit is

(A)$5(B)$500(C)$1,500(D)$2,000

10. Assume that for this firm, the minimum average variable cost is $12. If the market price were to fall to $10, the firm should

(A)continue to produce 100 units.(B)produce a lower quantity where P = MC.(C)shut down in the short run.(D)exit the market in the long run.

Questions 11-13 refer to the side-by-side graphs below, showing a perfectly competitive market for wheat and a representative wheat-producing firm, both initially in long-run equilibrium.

11. Which of the following is true for the firm at the initial long-run equilibrium?

(A)It is earning positive economic profit.(B)Price is equal to average variable cost.(C)Marginal cost is equal to minimum average total cost.(D)It is producing in the region of economies of scale.

12. Now, assume a new scientific study shows that eating wheat significantly improves health. In the short run, what will happen to the firm's price, output, and profit?

(A)Price increases, output increases, and it earns positive economic profit.(B)Price increases, output decreases, and it earns positive economic profit.(C)Price stays the same, output increases, and it earns zero economic profit.(D)Price increases, output increases, and it incurs an economic loss.

13. Following the short-run adjustment described in the previous question, what will happen in the long run?

(A)New firms will enter the market, causing the market price to fall until firms earn zero economic profit.(B)Existing firms will exit the market, causing the market price to rise further.(C)The government will regulate the price to prevent firms from earning excessive profits.(D)Firms will lower their costs, shifting their ATC curves down to maintain their profits.

14. An entrepreneur is considering starting a new business. She could earn $70,000 per year as a manager at another company. To start her business, she will use $50,000 of her own savings, which has been earning $5,000 in interest per year. Her first-year projected total revenue is $200,000, and her projected explicit costs are $120,000. What is her projected economic profit?

(A)-$5,000(B)$5,000(C)$75,000(D)$80,000

15. A firm's long-run average total cost curve is downward sloping. This indicates that the firm is experiencing

(A)diminishing marginal returns.(B)diseconomies of scale.(C)economies of scale.(D)constant returns to scale.

16. Which of the following is a key characteristic of a perfectly competitive market?

(A)Firms sell differentiated products.(B)There are significant barriers to entry.(C)Each firm faces a perfectly elastic demand curve.(D)Firms engage in strategic behavior with rivals.

17. A profit-maximizing firm is producing in the short run and incurring an economic loss. The firm should continue to produce as long as

(A)marginal revenue is greater than marginal cost.(B)price is greater than average fixed cost.(C)total revenue is greater than total variable cost.(D)accounting profit is positive.

18. The minimum efficient scale is the level of output at which

(A)marginal cost is at its minimum.(B)average fixed cost is at its minimum.(C)long-run average total cost is first minimized.(D)the firm first experiences diminishing marginal returns.

19. In a perfectly competitive market in long-run equilibrium, which of the following is true?

(A)Firms are productively efficient but not allocatively efficient.(B)Firms are allocatively efficient but not productively efficient.(C)Firms are both productively and allocatively efficient.(D)Firms are neither productively nor allocatively efficient.

20. The law of diminishing marginal returns provides the best explanation for which of the following?

(A)Why the average fixed cost curve is downward sloping.(B)Why the long-run average total cost curve is U-shaped.(C)Why the short-run marginal cost curve is eventually upward sloping.(D)Why perfectly competitive firms earn zero economic profit in the long run.

AP Microeconomics Unit 3: Production, Cost, and the Perfect Competition Model Practice Exam

Exam Details

A. Multiple-Choice Questions (20 Questions)

B. Short Answer Questions (2 Questions)

AP Microeconomics Unit 3: Production, Cost, and the Perfect Competition Model Practice Exam

Exam Details

A. Multiple-Choice Questions (20 Questions)

B. Short Answer Questions (2 Questions)