IVY SOFTWARE MBA PREPWORKS
FUNDAMENTALS OF ECONOMICS ACTUAL
EXAM PAPER 2026
◉ three decisions faced by a monopoly. Answer: 1) determine the
profit maximizing quantity to produce
2) decide what price to charge
3) because this is the short run, decide whether to produce or shut
down the business for a short period of time.
◉ profit maximizing quantity. Answer: marginal revenue equals
marginal cost
◉ Marginal cost is the increase in total cost that arises from an extra
unit of production (T/F). Answer: True.
◉ A production process has economies of scale if average total cost
decreases as production increases (true or false). Answer: True
◉ A production process has diseconomies of scale if average total
costs increase as output increases (T/F). Answer: True.
,◉ The production of a product has either economies of scale,
constant economies of scale, or diseconomies of scale (t/F). Answer:
True
◉ If a company's average total costs remain constant as output
increases, then the company has constant economies of scale. (t/F).
Answer: TRUE
◉ A sunk cost is a cost that has already been committed and can be
recovered.. Answer: false. can never be recovered. in contrast, any
product that can be re-sold for a positive dollar amount would not
be considered a sunk cost.
◉ A business always maximizes profits when it produces where total
revenue equals total cost (t/f). Answer: False. the profit maximizing
rule states that a business maximizes profits when it produces a
quantity where the MR from selling another unit equals the MC of
producing an additional unit.
◉ A business should shut down if production at the profit
maximizing quantity generates total revenues that are less than total
fixed costs. (t/f). Answer: false. a business should shut down when
the losses from operating are greater than the total fixed costs.
◉ short run shutdown rule.. Answer: a business should shut down if
production at the profit maximizing quantity
,◉ The accountants hired by Costa law firm have calculated that at
the profit maximizing quantity, total fixed costs equal $56,791, total
variable costs equal $113,555 and total revenue equals $112,000.
Because of this info, Costa Law firm decides:
A) to exit the industry
B) to shut down
C) decides to stay open because shutting down would be more
expensive
D) decides to stay open because they are making an economic profit.
Answer: B. to shut down. the shutdown rule states that a business
should shut down in the short run only if total revenue is less than
total variable costs. In this case, total revenue is $112,000 and total
variable cost is $113,555. Because total variable cost exceeds total
revenue, CLF should shut down.
◉ How can you tell if a business is operating in a perfectly
competitive market?. Answer: the marginal revenue from selling an
additional unit does not change as output increases. They are also
known as a price taker. You will notice the Marginal revenue column
stays constant as output increases.
◉ What is the per unit price in a perfectly competitive market? The
market equilibrium price is equal to. Answer: marginal revenue
, ◉ total cost equals. Answer: total revenue minus profit
◉ if marginal revenues and marginal costs do not equal in a chart
choose the closest option to determine marginal cost (t/f). Answer:
true
◉ In the WSJ article it was reported that Mitsubishi is seeking a
buyer for its U.S> operations, a move that may well signal the
company's intent to exit the world's largest car market. The
potential move by Mitsubishi is a matter of economies of scale or
economies of scope?. Answer: Economies of scale. it is trying to sell
its U.S> operations because they have been losing money for some
time in the U.S. market. By contracting its scale of operation,
Mitsubishi believes that it can turn its financial situation around.
◉ Consider the following decision made by Old Century Power
Company. In electricity production, once electricity has been
generated at a power plant, distribution networks are needed to
bring electricity to the customer. Suppose Old Century Power
Company has decided to build its own electricity generating plants
and its own electricity distribution network. In making this decision,
OCPC has calculated that economies of scale or economies of scope
exist when electricity generation and electricity distribution are
integrated under unified ownership?. Answer: economies of scope.
OCPC must observe an advantage to having unified ownership of
electricity generation and electricity distribution. If two activities in
FUNDAMENTALS OF ECONOMICS ACTUAL
EXAM PAPER 2026
◉ three decisions faced by a monopoly. Answer: 1) determine the
profit maximizing quantity to produce
2) decide what price to charge
3) because this is the short run, decide whether to produce or shut
down the business for a short period of time.
◉ profit maximizing quantity. Answer: marginal revenue equals
marginal cost
◉ Marginal cost is the increase in total cost that arises from an extra
unit of production (T/F). Answer: True.
◉ A production process has economies of scale if average total cost
decreases as production increases (true or false). Answer: True
◉ A production process has diseconomies of scale if average total
costs increase as output increases (T/F). Answer: True.
,◉ The production of a product has either economies of scale,
constant economies of scale, or diseconomies of scale (t/F). Answer:
True
◉ If a company's average total costs remain constant as output
increases, then the company has constant economies of scale. (t/F).
Answer: TRUE
◉ A sunk cost is a cost that has already been committed and can be
recovered.. Answer: false. can never be recovered. in contrast, any
product that can be re-sold for a positive dollar amount would not
be considered a sunk cost.
◉ A business always maximizes profits when it produces where total
revenue equals total cost (t/f). Answer: False. the profit maximizing
rule states that a business maximizes profits when it produces a
quantity where the MR from selling another unit equals the MC of
producing an additional unit.
◉ A business should shut down if production at the profit
maximizing quantity generates total revenues that are less than total
fixed costs. (t/f). Answer: false. a business should shut down when
the losses from operating are greater than the total fixed costs.
◉ short run shutdown rule.. Answer: a business should shut down if
production at the profit maximizing quantity
,◉ The accountants hired by Costa law firm have calculated that at
the profit maximizing quantity, total fixed costs equal $56,791, total
variable costs equal $113,555 and total revenue equals $112,000.
Because of this info, Costa Law firm decides:
A) to exit the industry
B) to shut down
C) decides to stay open because shutting down would be more
expensive
D) decides to stay open because they are making an economic profit.
Answer: B. to shut down. the shutdown rule states that a business
should shut down in the short run only if total revenue is less than
total variable costs. In this case, total revenue is $112,000 and total
variable cost is $113,555. Because total variable cost exceeds total
revenue, CLF should shut down.
◉ How can you tell if a business is operating in a perfectly
competitive market?. Answer: the marginal revenue from selling an
additional unit does not change as output increases. They are also
known as a price taker. You will notice the Marginal revenue column
stays constant as output increases.
◉ What is the per unit price in a perfectly competitive market? The
market equilibrium price is equal to. Answer: marginal revenue
, ◉ total cost equals. Answer: total revenue minus profit
◉ if marginal revenues and marginal costs do not equal in a chart
choose the closest option to determine marginal cost (t/f). Answer:
true
◉ In the WSJ article it was reported that Mitsubishi is seeking a
buyer for its U.S> operations, a move that may well signal the
company's intent to exit the world's largest car market. The
potential move by Mitsubishi is a matter of economies of scale or
economies of scope?. Answer: Economies of scale. it is trying to sell
its U.S> operations because they have been losing money for some
time in the U.S. market. By contracting its scale of operation,
Mitsubishi believes that it can turn its financial situation around.
◉ Consider the following decision made by Old Century Power
Company. In electricity production, once electricity has been
generated at a power plant, distribution networks are needed to
bring electricity to the customer. Suppose Old Century Power
Company has decided to build its own electricity generating plants
and its own electricity distribution network. In making this decision,
OCPC has calculated that economies of scale or economies of scope
exist when electricity generation and electricity distribution are
integrated under unified ownership?. Answer: economies of scope.
OCPC must observe an advantage to having unified ownership of
electricity generation and electricity distribution. If two activities in
