Question 1

The addition to a business firm's total costs that comes from producing one more unit of output is:

Accepted Answer

A) total variable cost. 
B) marginal cost. 
C) sunk cost. 
D) opportunity cost. 
E) total fixed cost 
A) total variable cost. 
B) marginal cost. 
C) sunk cost. 
D) opportunity cost. 
E) total fixed cost

Question 2

Assume that the marginal revenue curve intersects the rising portion of the marginal cost curve at 100 units of output.At this output level,a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400.If the price of the product is $8 per unit,the firm should produce:

Accepted Answer

A) zero units of output. 
B) less than 100 units of output. 
C) 100 units of output. 
D) more than 100 units of output. 
E) 200 units of the output. 
A) zero units of output. 
B) less than 100 units of output. 
C) 100 units of output. 
D) more than 100 units of output. 
E) 200 units of the output.

Question 3

Economic profit is the difference between accounting profit and total fixed cost.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not true of monopolistic competition?

Accepted Answer

A) There are a large number of buyers and sellers. 
B) The firms produce differentiated products. 
C) There exists free entry and exit of firms. 
D) Each of the firms faces a horizontal demand curve. 
E) Each of the firms act as a minimonopoly in the market. 
A) There are a large number of buyers and sellers. 
B) The firms produce differentiated products. 
C) There exists free entry and exit of firms. 
D) Each of the firms faces a horizontal demand curve. 
E) Each of the firms act as a minimonopoly in the market.

Question 5

Nancy owns and operates a drug store that generates total revenues worth $30 million in a particular year.Her accounting costs for the year are $25 million.She could have earned $3 million in this year if she had worked as a consultant for a pharmaceutical firm.Further,she could have earned 5 percent interest on $40 million of her own money that she invests in the business this year.Nancy's accounting profit in this year is _____ and her economic profit is _____.

Accepted Answer

A) $5 million; zero 
B) $5 million; $3 million 
C) $5 million; $8 million 
D) zero; $3 million 
E) $3 million; $43 million 
A) $5 million; zero 
B) $5 million; $3 million 
C) $5 million; $8 million 
D) zero; $3 million 
E) $3 million; $43 million

Question 6

Marginal revenue of nth unit of output is:

Accepted Answer

A) total revenue of (n+1)th unit minus total revenue of nth unit. 
B) total revenue of nth unit minus total revenue of (n-1)th unit. 
C) total revenue of (n+1)th unit minus total revenue of (n-1)th unit. 
D) the sum of total revenue of (n+1)th unit and nth unit. 
E) the sum of total revenue of (n+1)th unit and (n-1)th unit. 
A) total revenue of (n+1)th unit minus total revenue of nth unit. 
B) total revenue of nth unit minus total revenue of (n-1)th unit. 
C) total revenue of (n+1)th unit minus total revenue of (n-1)th unit. 
D) the sum of total revenue of (n+1)th unit and nth unit. 
E) the sum of total revenue of (n+1)th unit and (n-1)th unit.

Question 7

Which of the following is true of marginal revenue?

Accepted Answer

A) Marginal revenue equals total revenue divided by quantity. 
B) Marginal revenue is the slope of the supply curve of a firm. 
C) Marginal revenue is the slope of the total cost curve when profit is maximized. 
D) Marginal revenue equals the change in total revenue divided by the change in the quantity. 
E) Marginal revenue equals the income earned by selling the stocks on the margin. 
A) Marginal revenue equals total revenue divided by quantity. 
B) Marginal revenue is the slope of the supply curve of a firm. 
C) Marginal revenue is the slope of the total cost curve when profit is maximized. 
D) Marginal revenue equals the change in total revenue divided by the change in the quantity. 
E) Marginal revenue equals the income earned by selling the stocks on the margin.

Question 8

Suppose that Cheapo Industries,a perfectly competitive firm,currently produces 500 units of imitation ham spread for a total cost of $1,500.The marginal cost of the 500th unit is $20,and the marginal revenue of the 500th unit is $15.To maximize profits,Cheapo Industries should:

Accepted Answer

A) continue to produce 500 units. 
B) produce more than 500 units but less than 1500 units. 
C) produce less than 500 units. 
D) produce more than 1500 units. 
E) stop producing at 500 units. 
A) continue to produce 500 units. 
B) produce more than 500 units but less than 1500 units. 
C) produce less than 500 units. 
D) produce more than 1500 units. 
E) stop producing at 500 units.

Question 9

The opportunity cost of going to the movies is the price of entry into the movies.

Accepted Answer

A) True 
 B)False

Question 10

A monopolist faces the least price elastic demand curve because:

Accepted Answer

A) the consumers have only one place to buy the good. 
B) the monopolist produces a standardized product. 
C) the monopolist undertakes a huge expenditure to produce the product. 
D) the monopolist supplies an insignificant portion of the market. 
E) the monopolist produces an absolutely necessary good having close substitutes. 
A) the consumers have only one place to buy the good. 
B) the monopolist produces a standardized product. 
C) the monopolist undertakes a huge expenditure to produce the product. 
D) the monopolist supplies an insignificant portion of the market. 
E) the monopolist produces an absolutely necessary good having close substitutes.

Question 11

Suppose Mark invests a sum of $100,000 in a new venture.To fund his investment,Mark withdraws $50,000 from a savings account paying 10% per year and uses the proceeds from a bond that has just matured worth $50,000.If he had reinvested the proceeds from the bond he could have earned interest at the rate of 5%.Calculate the opportunity cost of capital for Mark in a particular year?

Accepted Answer

A) $5,000 
B) $7,500 
C) $10,000 
D) $12,500 
E) $100,000 
A) $5,000 
B) $7,500 
C) $10,000 
D) $12,500 
E) $100,000

Question 12

Assume that a firm is producing an output level such that marginal revenue equals marginal cost.One can correctly conclude that the firm is producing a level of output which is:

Accepted Answer

A) equal to the profit maximizing level of output. 
B) equal to revenue maximizing level of output. 
C) less than the profit maximizing level of output. 
D) zero. 
E) greater than the profit maximizing level of output. 
A) equal to the profit maximizing level of output. 
B) equal to revenue maximizing level of output. 
C) less than the profit maximizing level of output. 
D) zero. 
E) greater than the profit maximizing level of output.

Question 13

A firm enjoys a positive economic profit when:

Accepted Answer

A) the demand curve touches the average cost curve at the profit maximizing level of output. 
B) the marginal revenue curve has a negative intercept in the ordinate axis. 
C) the average revenue curve lies below the average cost curve at the profit maximizing level of output. 
D) the marginal cost is declining at the profit maximizing level of output. 
E) the average revenue curve lies above the average cost curve at the profit maximizing level of output. 
A) the demand curve touches the average cost curve at the profit maximizing level of output. 
B) the marginal revenue curve has a negative intercept in the ordinate axis. 
C) the average revenue curve lies below the average cost curve at the profit maximizing level of output. 
D) the marginal cost is declining at the profit maximizing level of output. 
E) the average revenue curve lies above the average cost curve at the profit maximizing level of output.

Question 14

A perfectly competitive firm spends a significant part of its revenue on advertisements,and tries to sell more by reducing its price below the market price.

Accepted Answer

A) True 
 B)False

Question 15

Entry barriers exist in a perfectly competitive industry.

Accepted Answer

A) True 
 B)False

Question 16

Profit of a firm is maximized when:

Accepted Answer

A) marginal revenue is maximum. 
B) marginal revenue is greater than marginal cost. 
C) marginal revenue is equal to marginal cost. 
D) marginal cost is minimum. 
E) marginal revenue is less than marginal cost. 
A) marginal revenue is maximum. 
B) marginal revenue is greater than marginal cost. 
C) marginal revenue is equal to marginal cost. 
D) marginal cost is minimum. 
E) marginal revenue is less than marginal cost.

Question 17

The only decision that a perfectly competitive firm makes is:

Accepted Answer

A) what price to charge. 
B) what quantity to produce. 
C) how much to spend on advertisements. 
D) how much to price discriminate. 
E) how to differentiate its products from its rivals. 
A) what price to charge. 
B) what quantity to produce. 
C) how much to spend on advertisements. 
D) how much to price discriminate. 
E) how to differentiate its products from its rivals.

Question 18

When economic profit is zero,producers do not have any incentive to deviate from the current line of production.

Accepted Answer

A) True 
 B)False

Question 19

Under oligopoly market structure,the rival firms take complete independent decisions.

Accepted Answer

A) True 
 B)False

Question 20

The figure given below shows the revenue and cost curves of a firm.MC represents the marginal cost curve,AC the average cost curve,MR the marginal revenue curve,and AR the average revenue curve. Figure 8.4   
-Refer to Figure 8.4.The profit maximizing level of output is:

Accepted Answer

A) 80 units. 
B) 70 units. 
C) 60 units. 
D) 50 units. 
E) 40 units. 
A) 80 units. 
B) 70 units. 
C) 60 units. 
D) 50 units. 
E) 40 units.

The addition to a business firm's total costs that comes from producing one more unit of output is:

Assume that the marginal revenue curve intersects the rising portion of the marginal cost curve at 100 units of output.At this output level,a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400.If the price of the product is $8 per unit,the firm should produce:

Economic profit is the difference between accounting profit and total fixed cost.

Which of the following is not true of monopolistic competition?

Marginal revenue of n^th unit of output is:

Which of the following is true of marginal revenue?

Suppose that Cheapo Industries,a perfectly competitive firm,currently produces 500 units of imitation ham spread for a total cost of $1,500.The marginal cost of the 500^th unit is $20,and the marginal revenue of the 500^th unit is $15.To maximize profits,Cheapo Industries should:

The opportunity cost of going to the movies is the price of entry into the movies.

A monopolist faces the least price elastic demand curve because:

Assume that a firm is producing an output level such that marginal revenue equals marginal cost.One can correctly conclude that the firm is producing a level of output which is:

A firm enjoys a positive economic profit when:

A perfectly competitive firm spends a significant part of its revenue on advertisements,and tries to sell more by reducing its price below the market price.

Entry barriers exist in a perfectly competitive industry.

Profit of a firm is maximized when:

The only decision that a perfectly competitive firm makes is:

When economic profit is zero,producers do not have any incentive to deviate from the current line of production.

Under oligopoly market structure,the rival firms take complete independent decisions.

The figure given below shows the revenue and cost curves of a firm.MC represents the marginal cost curve,AC the average cost curve,MR the marginal revenue curve,and AR the average revenue curve. Figure 8.4 -Refer to Figure 8.4.The profit maximizing level of output is:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Exam 8: Profit Maximization

The addition to a business firm's total costs that comes from producing one more unit of output is:

Assume that the marginal revenue curve intersects the rising portion of the marginal cost curve at 100 units of output.At this output level,a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400.If the price of the product is $8 per unit,the firm should produce:

Economic profit is the difference between accounting profit and total fixed cost.

Which of the following is not true of monopolistic competition?

Marginal revenue of nth unit of output is:

Which of the following is true of marginal revenue?

Suppose that Cheapo Industries,a perfectly competitive firm,currently produces 500 units of imitation ham spread for a total cost of $1,500.The marginal cost of the 500th unit is $20,and the marginal revenue of the 500th unit is $15.To maximize profits,Cheapo Industries should:

The opportunity cost of going to the movies is the price of entry into the movies.

A monopolist faces the least price elastic demand curve because:

Assume that a firm is producing an output level such that marginal revenue equals marginal cost.One can correctly conclude that the firm is producing a level of output which is:

A firm enjoys a positive economic profit when:

A perfectly competitive firm spends a significant part of its revenue on advertisements,and tries to sell more by reducing its price below the market price.

Entry barriers exist in a perfectly competitive industry.

Profit of a firm is maximized when:

The only decision that a perfectly competitive firm makes is:

When economic profit is zero,producers do not have any incentive to deviate from the current line of production.

Under oligopoly market structure,the rival firms take complete independent decisions.

The figure given below shows the revenue and cost curves of a firm.MC represents the marginal cost curve,AC the average cost curve,MR the marginal revenue curve,and AR the average revenue curve. Figure 8.4 -Refer to Figure 8.4.The profit maximizing level of output is:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Marginal revenue of n^th unit of output is:

Suppose that Cheapo Industries,a perfectly competitive firm,currently produces 500 units of imitation ham spread for a total cost of $1,500.The marginal cost of the 500^th unit is $20,and the marginal revenue of the 500^th unit is $15.To maximize profits,Cheapo Industries should: