ECO402 Final Term MCQs 2026 by Ali Khan

Q1. Imposition of an output tax on all firms in a competitive industry will result in:

1. The entry of new firms into the industry.
2. A downward shift in each firm's marginal cost curve.
3. A leftward shift in the market supply curve.
4. A downward shift in each firm's average cost curve.

Correct answer: A leftward shift in the market supply curve.

Q2. Which of the following costs always increase(s) as output increases?

1. Total Variable cost
2. Fixed Cost
3. Average Fixed Cost
4. Average Variable Cost

Correct answer: Total Variable cost

Q3. The producer surplus for a market can be measured as:

1. Area under the supply curve to the left of equilibrium output.
2. Area under the demand curve to the left of equilibrium output.
3. Area between the equilibrium price line and the supply curve to the left of equilibrium output.
4. Vertical intercept of the supply curve.

Correct answer: Area between the equilibrium price line and the supply curve to the left of equilibrium output.

Q4. A firm never operates:

1. At the minimum of its AVC curve.
2. On the downward-sloping portion of its ATC curve.
3. On the downward-sloping portion of its AVC curve.
4. At the minimum of its ATC curve.

Correct answer: At the minimum of its AVC curve.

Q5. The shape of long-run supply curve of a constant-cost industry is:

1. Downward-sloping.
2. Upward-sloping.
3. Horizontal.
4. Vertical.

Correct answer: Horizontal.

Q6. In a constant-cost industry, price always equals:

1. LRAC and minimum LRMC.
2. LRMC and LRAC, but not necessarily minimum LRAC.
3. LRMC and minimum LRAC.
4. Minimum LRAC, but not LRMC.

Correct answer: LRAC and minimum LRMC.

Q7. Producer surplus is measured as the:

1. Area under the demand curve above market price.
2. Area under the demand curve above the supply curve.
3. Area above the supply curve up to the market price.
4. Entire area under the supply curve.

Correct answer: Area above the supply curve up to the market price.

Q8. When the joint output of a single firm is greater than the output that could be achieved by two different

1. Economies of scope
2. Diseconomies of scale
3. Economies of scale
4. Diseconomies of scope

Correct answer: Economies of scale

Q9. In a perfectly competitive firm, the profit maximizing output is found where:

1. Price=MR and MC is constant.
2. MC=MR and MC is increasing.
3. MC=MR and MC is decreasing.
4. Price=MR and MC is decreasing.

Correct answer: MC=MR and MC is increasing.

Q10. The sum over all units produced of the difference between market price of the good and firm’s marginal cost of production is:

1. Marginal revenue.
2. Maximum profit.
3. Total revenue.
4. Producer surplus.

Correct answer: Producer surplus.

Q1. Which of the following costs always increase(s) as output increases?

1. Fixed Cost
2. Average Variable Cost
3. Total Variable cost
4. Average Fixed Cost

Correct answer: Total Variable cost

Q2. The ratio of the wage rate to rental cost of capital is called:

1. Slope of indifference curve
2. Slope of production function
3. Slope of isocost
4. Slope of isoquant

Correct answer: Slope of isocost

Q3. The supply curve for a competitive firm is:

1. The upward-sloping portion of its MC curve.
2. Its MC curve above the minimum point of the AVC curve.
3. Its entire MC curve.
4. Its MC curve above the minimum point of the ATC curve.

Correct answer: Its MC curve above the minimum point of the AVC curve.

Q4. What happens in a perfectly competitive industry when economic profit is greater than zero?

1. New firms may enter the industry.
2. Firms may move along their LRAC curves to new outputs.
3. Existing firms may get larger.
4. All of the given options.

Correct answer: All of the given options.

Q5. When the joint output of a single firm is greater than the output that could be achieved by two different

1. Economies of scale
2. Diseconomies of scale
3. Diseconomies of scope
4. Economies of scope

Correct answer: Economies of scope

Q6. In the long run under perfect competition a firm produces at a point where:

1. Price is greater than long run marginal cost
2. Price is greater than long run average cost
3. Price is equal to long run average cost
4. Price is less than long run average cost

Correct answer: Price is equal to long run average cost