A Level Economics (A2) chapter 1: The price system and the microeconomy MCQs with answers

By Team Megalecture · Updated 4 Nov 2026

135 exam-style questions on The price system and the microeconomy, each with the answer and a short explanation. Ten of them are below to try. The chapter test draws ten fresh questions each time and is marked the moment you finish, with your score by topic.

135 questions · 8 topics · 10 per test

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What chapter 1 covers

Ten The price system and the microeconomy questions with answers

Try each one, then open the answer. These ten stay the same; the test draws new ones every time.

1. The owners of a profitable family firm decide not to expand it, although they could. What is the most likely reason?

  1. A
    they prefer to keep control of the firm and a manageable workload
  2. B
    small firms enjoy greater economies of scale than large firms
  3. C
    expanding would automatically turn the firm into a natural monopoly
  4. D
    the law prevents small firms from growing beyond a fixed size
Show answer

Answer: A. Many firms stay small by choice: owners may value independence, control and a manageable workload more than extra profit. Economies of scale favour large firms, not small ones.

2. What is the short-run supply curve of a firm in perfect competition?

  1. A
    the whole of its marginal cost curve
  2. B
    its marginal cost curve above minimum average variable cost
  3. C
    its average variable cost curve above minimum marginal cost
  4. D
    its average total cost curve above minimum average variable cost
Show answer

Answer: B. The firm produces where P = MC, so its marginal cost curve shows the quantity supplied at each price. Below minimum AVC it produces nothing, so only the part of the MC curve above that point is its supply curve.

3. A chocolate manufacturer takes over a cocoa plantation. What type of integration is this?

  1. A
    forward vertical integration
  2. B
    backward vertical integration
  3. C
    horizontal integration
  4. D
    conglomerate integration
Show answer

Answer: B. The firm has joined with a business at an earlier stage of its own production chain, its raw material supplier, so this is backward vertical integration.

4. What distinguishes the long run from the short run in the theory of production?

  1. A
    in the long run all factors of production can be varied
  2. B
    in the long run at least one factor of production is fixed
  3. C
    the long run is any period of more than one year
  4. D
    in the long run the law of diminishing returns sets costs
Show answer

Answer: A. The long run is defined by the absence of fixed factors, not by calendar time, so its length differs between industries. In the short run at least one factor is fixed, which is why diminishing returns are a short-run idea.

5. Two large firms in the same market merge. Which is the most likely disadvantage for consumers?

  1. A
    the merged firm may use its greater market power to raise prices
  2. B
    the merged firm will be too small to gain economies of scale
  3. C
    the number of competing firms in the market will increase
  4. D
    the merged firm will be forced to set price equal to marginal cost
Show answer

Answer: A. A horizontal merger reduces competition, so the merged firm may raise prices or reduce choice. It may also gain economies of scale that lower costs, which is why competition authorities weigh both effects.

6. Using marginal utility theory, why does a consumer buy more of a good when its price falls, other things being equal?

  1. A
    the marginal utility of each unit of the good rises when its price falls, so she wants more units of it
  2. B
    her total utility from the good falls, so she buys more units to restore her previous level of satisfaction
  3. C
    the fall in price reduces her money income, so she switches her spending towards the cheaper good
  4. D
    the marginal utility per dollar spent on it rises, so she buys more until it equals that of other goods
Show answer

Answer: D. A lower price raises MU/P for the good above that of other goods. Buying more lowers its marginal utility until MU/P is equal again, so a lower price gives a larger quantity demanded, which traces out a downward-sloping demand curve. The price change does not alter the utility each unit gives.

7. In a market, each firm takes account of the likely reactions of its rivals when deciding its price. Which market structure is this?

  1. A
    monopolistic competition
  2. B
    perfect competition
  3. C
    oligopoly
  4. D
    monopoly
Show answer

Answer: C. Interdependence between a few large firms is the defining feature of oligopoly. In perfect and monopolistic competition each firm is too small to affect the others, and a monopolist has no rivals.

8. A firm has total fixed costs of $4000. At its current output of 1000 units, its average variable cost is $6 and the price is $9.50. Costs include normal profit. What profit does the firm make?

  1. A
    a supernormal profit of $3500
  2. B
    a subnormal profit (loss) of $4000
  3. C
    a subnormal profit (loss) of $500
  4. D
    a supernormal profit of $500
Show answer

Answer: C. Total cost = $4000 + 1000 × $6 = $10 000 and total revenue = 1000 × $9.50 = $9500, so the firm is $500 short of normal profit. $3500 ignores the fixed costs.

9. A perfectly competitive firm faces a price of $8. At its best output of 500 units, its average total cost is $10 and its average variable cost is $7. What should it do in the short run?

  1. A
    shut down, because at its best output it would make a loss of $1000
  2. B
    shut down, because the price is $2 below its average total cost
  3. C
    continue producing, because it earns a supernormal profit of $500
  4. D
    continue, because its loss of $1000 is less than its fixed costs of $1500
Show answer

Answer: D. If it produces, the loss is (10 − 8) × 500 = $1000. If it shuts down it still pays fixed costs of (10 − 7) × 500 = $1500. Producing is better because price covers AVC; the $500 by which revenue exceeds variable cost is a contribution to fixed costs, not a supernormal profit.

10. A firm faces price-elastic demand for its product and lowers its price. What happens to its total revenue?

  1. A
    it falls, because marginal revenue is negative
  2. B
    it is unchanged, because the effects cancel out
  3. C
    it falls, because average revenue has fallen
  4. D
    it rises, because marginal revenue is positive
Show answer

Answer: D. With elastic demand the percentage rise in quantity is greater than the percentage fall in price, so total revenue rises. This is the range of the demand curve in which marginal revenue is positive.

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The price system and the microeconomy: questions students ask

How many The price system and the microeconomy MCQs are there?

135, each with the answer and a short explanation, across 8 topics: Utility, Indifference curves and budget lines, Efficiency and market failure, Private costs and benefits, externalities and social costs and benefits, Types of cost, revenue and profit, short-run and long-run production, Different market structures, Growth and survival of firms, Differing objectives and policies of firms. Every chapter test draws ten of them, so you can take it many times.

Is the A Level Economics (A2) chapter 1 test free?

Yes. The test, the answers and the explanations are free and need no sign-up. Sign in only if you want your scores kept across devices.

How is the chapter test marked?

The moment you press Finish: your score, the right answer and an explanation for every question, and the ones you got wrong saved in My mistakes to retry.

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