AP (Advanced Placement) · AP Microeconomics

3.1 The Production Function: Practice Questions

5 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on 3.1 The Production Function.

10 questions21 marksFree, no account
Question 1
1 mark

In a perfectly competitive industry, the individual firm's demand curve is:

Question 2
1 mark

Suppose a perfectly competitive firm is producing an output level where market price is greater than its marginal cost (\(P > MC\)). To maximize profit, the firm should:

Question 3
1 mark

Why is a perfectly competitive firm's demand curve horizontal?

Question 4
1 mark

Why is the demand curve facing an individual perfectly competitive firm perfectly elastic (horizontal)?

Question 5
1 mark

A profit-maximizing firm in a perfectly competitive market will choose its output level where:

Question 6
2 marks

Define the term opportunity cost in the context of production decisions made by a firm.

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Question 7
4 marks

If a perfectly competitive industry experiences an increase in market demand, what happens to the market price and the output of an individual firm in the short run?

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Question 8
2 marks

State the profit-maximizing condition for a price-taking firm in a perfectly competitive market.

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Question 9
4 marks

Analyze the short-run shut-down decision for a competitive firm. (a) State the condition under which a firm should shut down immediately in the short run. (b) Explain why covering variable costs is more critical than covering fixed costs for short-run operation.

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Question 10
4 marks

Examine the long-run equilibrium of a perfectly competitive market. (a) What type of economic profit do firms earn in long-run equilibrium? (b) Explain the role of entry and exit in achieving this long-run outcome.

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