Q: Which formula correctly calculates economic profit?

$$\text{Economic Profit} = \text{Total Revenue} - \text{Total Cost}$$

Question 1

In a perfectly competitive market, at what point does a firm maximize its profit?

Accepted Answer

Where marginal cost equals marginal revenue ($$MC = MR)$$

Question 2

A perfectly competitive firm should stop producing additional units when:

Accepted Answer

Marginal cost equals marginal revenue

Question 3

Which of the following best describes a perfectly competitive market?

Accepted Answer

Firms are price takers and sell identical products

Question 4

If a firm in perfect competition faces a market price of $$10$$ and its marginal cost at $$q=50$$ units is also $$10$$, what should the firm do to maximize profit?

Accepted Answer

Maintain output at $$q=50$$ units

Question 5

Which formula correctly calculates economic profit?

Accepted Answer

$$	ext{Economic Profit} = 	ext{Total Revenue} - 	ext{Total Cost}$$

Question 6

Suppose a cotton farmer’s total revenue is $$\20$$,000$$ and total cost is $$\$$18,000. $$What is the area of economic profit?

Accepted Answer

$$\2$$,000$

Question 7

If a perfectly competitive firm’s price is below average variable cost ($$AVC$$), what should the firm do in the short run?

Accepted Answer

Shut down production immediately

Question 8

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Significant barriers to entry

Question 9

A firm’s profit is maximized at the output level where:

Accepted Answer

$$MR = MC$$

Question 10

If a firm’s total revenue is $$\15$$,000$$ and its total cost is $$\$$17,000$$, what is the firm’s economic profit?

Accepted Answer

$$\2$$,000$ loss

Question 11

Which of the following best explains why a perfectly competitive firm is a price taker?

Accepted Answer

Its output is too small to influence the market price

Question 12

If the market price is $$\8$, average total cost ($$ATC$$) is $$\$$6$$, and the firm sells 100 units, what is the firm’s economic profit?

Accepted Answer

$$\200$

Question 13

At what point should a perfectly competitive firm shut down in the short run?

Accepted Answer

When price is less than average variable cost ($$P \u003c AVC)$$

Question 14

If a firm’s marginal cost curve is above its average variable cost curve, what does this indicate?

Accepted Answer

Average variable cost is rising

Question 15

Which of the following is considered economic profit on a cost curve diagram?

Accepted Answer

The area between price and average total cost, multiplied by quantity

Question 16

A firm’s marginal cost ($$MC) at 200 $$units is $$\5$, and the market price is $$\$$7. $$What should the firm do?

Accepted Answer

Increase output

Question 17

If a perfectly competitive firm is making zero economic profit, what does this imply?

Accepted Answer

The firm’s total revenue equals its total cost, including opportunity costs

Question 18

Which of the following is true about the demand curve facing a perfectly competitive firm?

Accepted Answer

It is perfectly elastic at the market price

Question 19

If a firm’s average total cost ($$ATC) is$$ $$\12$, price is $$\$$10$$, and it sells 50 units, what is the firm’s economic profit?

Accepted Answer

$$-\100$

Question 20

Which of the following best describes the shutdown rule for a perfectly competitive firm?

Accepted Answer

Shut down if price is less than average variable cost ($$P \u003c AVC)$$

Profit Maximization and Perfect Competition: Key Concepts and Calculations

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