Question 1

The primary goal of any business firm is to maximize social welfare.

Accepted Answer

A) True 
 B)False

Question 2

Assume that a firm's 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 cost is $1,000.If the price of the product is $10 per unit,the firm will earn an economic profit of:

Accepted Answer

A) zero. 
B) $400. 
C) more than zero but less than $100. 
D) $100. 
E) more than $100. 
A) zero. 
B) $400. 
C) more than zero but less than $100. 
D) $100. 
E) more than $100.

Question 3

Graphically,total revenue is represented by the:

Accepted Answer

A) triangle formed under the demand curve. 
B) rectangle formed under the demand curve at a given price and quantity combination. 
C) rectangle formed under the average-total-cost curve at a given ATC and quantity combination. 
D) line segment between the demand and average-total-cost curves at any level of output. 
E) the line segment between the horizontal axis and the average-total-cost curves at any level of output. 
A) triangle formed under the demand curve. 
B) rectangle formed under the demand curve at a given price and quantity combination. 
C) rectangle formed under the average-total-cost curve at a given ATC and quantity combination. 
D) line segment between the demand and average-total-cost curves at any level of output. 
E) the line segment between the horizontal axis and the average-total-cost curves at any level of output.

Question 4

The greater the differentiation among products of the monopolistically competitive firms,the less price-elastic is the demand.

Accepted Answer

A) True 
 B)False

Question 5

The entry of new firms into the market stops when:

Accepted Answer

A) accounting profit falls to zero. 
B) the general price level in the economy rises. 
C) the rate of interest declines. 
D) economic profit falls to zero. 
E) the corporate taxes are relaxed. 
A) accounting profit falls to zero. 
B) the general price level in the economy rises. 
C) the rate of interest declines. 
D) economic profit falls to zero. 
E) the corporate taxes are relaxed.

Question 6

Firms under perfect competition produce:

Accepted Answer

A) homogeneous products. 
B) unique products. 
C) either standardized or differentiated products. 
D) differentiated products. 
E) antique products. 
A) homogeneous products. 
B) unique products. 
C) either standardized or differentiated products. 
D) differentiated products. 
E) antique products.

Question 7

A firm wishing to maximize profits will produce at the level of output where:

Accepted Answer

A) marginal cost is equal to zero. 
B) its total-cost curve intersects its total-revenue curve. 
C) costs are at a minimum. 
D) total revenue exceeds total cost by the largest amount. 
E) marginal revenue exceeds marginal cost by the greatest amount. 
A) marginal cost is equal to zero. 
B) its total-cost curve intersects its total-revenue curve. 
C) costs are at a minimum. 
D) total revenue exceeds total cost by the largest amount. 
E) marginal revenue exceeds marginal cost by the greatest amount.

Question 8

A producer can raise profit by expanding output if:

Accepted Answer

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

Question 9

Accounting profit does not include:

Accepted Answer

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

Question 10

Entry of new firms to the industry lowers the economic profit of the existing firms.

Accepted Answer

A) True 
 B)False

Question 11

A(n) ____ may offer products that are either differentiated or identical.

Accepted Answer

A) monopolistically competitive firm 
B) monopolist 
C) oligopolistic firm 
D) perfectly competitive firm 
E) monopsonist 
A) monopolistically competitive firm 
B) monopolist 
C) oligopolistic firm 
D) perfectly competitive firm 
E) monopsonist

Question 12

The following graph shows the marginal revenue (MR) and marginal cost (MC) curves of an imperfectly competitive firm. Figure 8.2   
-Refer to Figure 8.2.At a quantity of 10 the firm should _____ ,but at a quantity of 75 the firm should _____.

Accepted Answer

A) leave production unchanged; also leave production unchanged 
B) leave production unchanged; decrease production 
C) increase production; decrease production 
D) increase production; leave production unchanged 
E) decrease production; increase production 
A) leave production unchanged; also leave production unchanged 
B) leave production unchanged; decrease production 
C) increase production; decrease production 
D) increase production; leave production unchanged 
E) decrease production; increase production

Question 13

If marginal revenue is greater than marginal cost,the producer must reduce the level of output to maximize profit.

Accepted Answer

A) True 
 B)False

Question 14

The reason accountants do not often report economic profits on income statements and balance sheets is:

Accepted Answer

A) economic profits are exactly the same as accounting profits,and thus they do not need to be broken out on financial statements. 
B) the cost of capital,while easy to measure,is very difficult to report. 
C) it might make some firms look as though they possessed an unfair competitive advantage over other firms. 
D) the cost of equity capital is very difficult to measure,and opportunity costs vary from investor to investor. 
E) the concept of economic profit is not firmly established in economic theory. 
A) economic profits are exactly the same as accounting profits,and thus they do not need to be broken out on financial statements. 
B) the cost of capital,while easy to measure,is very difficult to report. 
C) it might make some firms look as though they possessed an unfair competitive advantage over other firms. 
D) the cost of equity capital is very difficult to measure,and opportunity costs vary from investor to investor. 
E) the concept of economic profit is not firmly established in economic theory.

Question 15

The following graph shows the marginal revenue (MR) and marginal cost (MC) curves of an imperfectly competitive firm. Figure 8.2  
- Refer to Figure 8.2.If the current production level is 90 and the firm wishes to maximize profit,it should:

Accepted Answer

A) leave the current production level unchanged. 
B) decrease the quantity produced to 75. 
C) decrease the quantity produced to 50. 
D) decrease the quantity produced to 35. 
E) increase production until MR = MC. 
A) leave the current production level unchanged. 
B) decrease the quantity produced to 75. 
C) decrease the quantity produced to 50. 
D) decrease the quantity produced to 35. 
E) increase production until MR = MC.

Question 16

Profit is the difference between:

Accepted Answer

A) total output and total cost. 
B) total revenue and total cost. 
C) total revenue and total sunk cost. 
D) total output and total sunk cost. 
E) total revenue and opportunity cost. 
A) total output and total cost. 
B) total revenue and total cost. 
C) total revenue and total sunk cost. 
D) total output and total sunk cost. 
E) total revenue and opportunity cost.

Question 17

The table given below shows the total revenue and total cost of producing a commodity. Table 8.1
  
-In Table 8.1,marginal revenue exceeds marginal cost:

Accepted Answer

A) until the fifth unit of output. 
B) until the sixth unit of output. 
C) up to the seventh unit of output. 
D) up to the eighth unit of output. 
E) at all units of output. 
A) until the fifth unit of output. 
B) until the sixth unit of output. 
C) up to the seventh unit of output. 
D) up to the eighth unit of output. 
E) at all units of output.

Question 18

The equity capital of a privately owned firm includes:

Accepted Answer

A) the owner's own dollars put into the firm. 
B) the cost of raw materials. 
C) the cost of labor resource used in production. 
D) economic rent only. 
E) the value added at each stage of production. 
A) the owner's own dollars put into the firm. 
B) the cost of raw materials. 
C) the cost of labor resource used in production. 
D) economic rent only. 
E) the value added at each stage of production.

Question 19

Graphically,profit per unit of output can be found by:

Accepted Answer

A) the triangle formed under the demand curve. 
B) the rectangle formed under the demand curve at a given price and quantity combination. 
C) the rectangle formed under the average-total-cost curve at a given ATC and quantity combination. 
D) the line segment between the demand and average-total-cost curves at any level of output. 
E) the line segment between the horizontal axis and the average-total-cost curves at any level of output. 
A) the triangle formed under the demand curve. 
B) the rectangle formed under the demand curve at a given price and quantity combination. 
C) the rectangle formed under the average-total-cost curve at a given ATC and quantity combination. 
D) the line segment between the demand and average-total-cost curves at any level of output. 
E) the line segment between the horizontal axis and the average-total-cost curves at any level of output.

Question 20

A monopolist faces the market demand curve.

Accepted Answer

A) True 
 B)False

Exam 8: Profit Maximization

The primary goal of any business firm is to maximize social welfare.

Assume that a firm's 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 cost is $1,000.If the price of the product is $10 per unit,the firm will earn an economic profit of:

Graphically,total revenue is represented by the:

The greater the differentiation among products of the monopolistically competitive firms,the less price-elastic is the demand.

The entry of new firms into the market stops when:

Firms under perfect competition produce:

A firm wishing to maximize profits will produce at the level of output where:

A producer can raise profit by expanding output if:

Accounting profit does not include:

Entry of new firms to the industry lowers the economic profit of the existing firms.

A(n) ____ may offer products that are either differentiated or identical.

The following graph shows the marginal revenue (MR) and marginal cost (MC) curves of an imperfectly competitive firm. Figure 8.2 -Refer to Figure 8.2.At a quantity of 10 the firm should _____ ,but at a quantity of 75 the firm should _____.

If marginal revenue is greater than marginal cost,the producer must reduce the level of output to maximize profit.

The reason accountants do not often report economic profits on income statements and balance sheets is:

The following graph shows the marginal revenue (MR) and marginal cost (MC) curves of an imperfectly competitive firm. Figure 8.2 - Refer to Figure 8.2.If the current production level is 90 and the firm wishes to maximize profit,it should:

Profit is the difference between:

The table given below shows the total revenue and total cost of producing a commodity. Table 8.1 -In Table 8.1,marginal revenue exceeds marginal cost:

The equity capital of a privately owned firm includes:

Graphically,profit per unit of output can be found by:

A monopolist faces the market demand curve.

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

The following graph shows the marginal revenue (MR) and marginal cost (MC) curves of an imperfectly competitive firm. Figure 8.2 -Refer to Figure 8.2.At a quantity of 10 the firm should _ ,but at a quantity of 75 the firm should _.