Exam 8: Profit Maximization

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 8.1 - Refer to Figure 8.1.At price P₁ the firm sells quantity Q₁,and total revenue is shown by:

Suppose that at a given level of output,a perfectly competitive firm charges a price of $12 and has average total costs of $10.If its economic profit is $20,000,then it must be producing:

Scenario 8.1 Jane left her job at Siemens and started her own boutique.She used to earn $50,000 annually at Siemens.She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture.She agreed to repay the loan with 10% interest.Her business is bringing in $80,000 annually.She has rent and labor expenses of $15,000.Also assume that Jane could have used her own money i.e.$20,000 to buy stocks in Intel which would have returned 5% to her last year. -Refer to Scenario 8.1 and calculate Jane's accounting profit.

Accounting profit is called normal profit when:

Positive economic profit signals that the investors should divert their funds to alternative ventures.

The following figure shows the cost and revenue structures of a firm.MC represents the marginal cost curve,AC represents the average cost curve,AR represents the average revenue curve,and MR represents the marginal revenue curve.P* is the equilibrium price and Q* is the equilibrium output. Figure 8.5 - Refer to Figure 8.5.Identify the market structure in which the firm operates:

Scenario 8.2 Consider a publicly held firm (one whose stock shares are traded on the stock exchange) that earned revenue worth $350 million and incurred land,labor,and debt costs worth $320 million.The stockholders who have invested a total of $100 million in this firm could have earned 10 percent return on other comparable investments. -According to the information in Scenario 8.2,how much economic profit did the firm make last year?

The MR schedule can be obtained from the TR schedule by:

When a firm incurs negative economic profit,it should:

Suppose that Megabucks Corporation is earning economic profit of $4,000.If its price is $6 per unit and its ATC is $4 per unit,it must be producing 8,000 units.

Under perfect competition,at the profit maximizing level of output:

The opportunity cost of capital is:

In general,the number of firms is lesser in monopolistic competition compared to oligopoly.

A monopolistically competitive firm faces a relatively elastic demand curve than a monopolist firm because of the:

Scenario 8.2 Consider a publicly held firm (one whose stock shares are traded on the stock exchange) that earned revenue worth $350 million and incurred land,labor,and debt costs worth $320 million.The stockholders who have invested a total of $100 million in this firm could have earned 10 percent return on other comparable investments. -According to the information in Scenario 8.2,how much accounting profit did the firm make last year?

An industry which has no barriers to entry,no product promotion strategy,a standardized product,and a very large number of firms operating within it,is said to have:

Irrespective of the market structure,a firm maximizes profit where the price of its product equals its marginal cost.

When economic profit is greater than zero,accounting profit is called normal profit.

The figure given below shows the cost curves of a firm. Figure 8.3 ATC: Average Total Cost AVC: Average Variable Cost MC: Marginal Cost -In Figure 8.3,what is marginal cost at a quantity of 120 units?

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client. Table 8.2 - Refer to Table 8.1.If we assume that Holmes is currently serving 8 clients,then Holmes Agency: