1. What is marginal cost?
A the difference between the total cost of producing n units and n – 1 units of output
B the difference between the average variable cost of producing n units and n – 1 units of
output
C the difference between the average total cost of producing n units and n – 1 units of output
D the average fixed cost of producing one more unit of output

2. The table shows the production and total cost of a firm.

Production (tonnes)	Total cost ($)
0	20
1	30
2	35
3	40
4	45
5	50

What is the average variable cost of producing 5 tonnes of output?
A $4 B $5 C $6 D $10

3. The diagram shows the long-run total cost (LRTC) curve of a firm.

At which output is the long-run average total cost at its minimum?
A OW B OX C OY D OZ

4. Which combination of statements about small firms and large firms is correct?

	Small firms	Large firms
A	Are more common in manufacturing than in services	Face high barriers to exit
B	Are more numerous than large ones	Do not experience diseconomies of scale
C	Can do well when each item produced must be different	May arise from internal growth or mergers
D	Cannot have any monopoly power	Cannot earn supernormal profits

5. Why might the long-run equilibrium of a profit-maximising firm in a monopolistically competitive
market differ from its short-run equilibrium?
A Advertising expenditure is possible.
B There are low barriers to entry.
C Firms experience diminishing returns.
D Innovation reduces the monopoly power of firms.