Q: Which equation correctly represents economic profit?

$$\text{Economic Profit} = \text{Total Revenues} - (\text{Total Monetary Cost} + \text{Opportunity Cost})$$

Q: Which of the following equations represents the profit-maximizing condition for a firm?

$$\text{Marginal Cost} = \text{Marginal Revenue}$$

Question 1

Which of the following best describes the producer problem in economics?

Accepted Answer

How producers determine who will produce which goods and how much of each, based on prices.

Question 2

A bakery purchases a special oven for $$20,000. If the oven can be resold immediately for 18$$,000, what is the sunk cost of this investment?

Accepted Answer

$2,000

Question 3

Which equation correctly represents economic profit?

Accepted Answer

$$	ext{Economic Profit} = 	ext{Total Revenues} - (	ext{Total Monetary Cost} + 	ext{Opportunity Cost})$$

Question 4

Why do economists assume firms maximize profit?

Accepted Answer

Because it simplifies the analysis of production and pricing decisions by providing a clear objective for firms.

Question 5

Which of the following is NOT a characteristic of a price-taking firm?

Accepted Answer

The firm can influence the market price by changing its output.

Question 6

Suppose a firm’s marginal cost of producing an additional unit is $$10, and the market price is 12. $$According to profit maximization, what should the firm do?

Accepted Answer

Increase production until marginal cost equals marginal revenue.

Question 7

Which law explains why adding more workers to a fixed amount of capital eventually leads to lower additional output?

Accepted Answer

Law of Diminishing Marginal Returns

Question 8

In the short run, which cost curve is affected by fixed costs?

Accepted Answer

Average total cost

Question 9

A firm is considering entering a market. Which cost is most relevant for deciding whether to enter?

Accepted Answer

Average cost

Question 10

Which of the following best describes a price-searching firm?

Accepted Answer

A firm whose output decisions influence the market price.

Question 11

Why does the marginal revenue curve for a price-searching firm lie below its demand curve?

Accepted Answer

Because increasing output lowers the price on all units sold, reducing additional revenue from each extra unit.

Question 12

Which of the following is an example of a good produced in a price-taking market?

Accepted Answer

Wheat

Question 13

What is the main source of market (monopoly) power for a firm in a price-searching market?

Accepted Answer

Product differentiation

Question 14

Which of the following equations represents the profit-maximizing condition for a firm?

Accepted Answer

$$	ext{Marginal Cost} = 	ext{Marginal Revenue}$$

Question 15

Which of the following is a defining feature of a cartel?

Accepted Answer

Firms cooperate to keep prices high, but each has an incentive to cheat.

Question 16

If a firm’s average cost is higher than the market price, what should the firm do in the long run?

Accepted Answer

Exit the market

Question 17

Which of the following best explains why cartels are difficult to sustain?

Accepted Answer

Each member has an incentive to break the agreement to increase their own profit.

Question 18

Suppose a firm faces the following costs: Total cost = $$500, Total revenue = 600$$, Opportunity cost = $150. What is the economic profit?

Accepted Answer

$$\600$$ - (\$$500 + \150$$) = \$$-50$$

Question 19

Which of the following is true about sunk costs?

Accepted Answer

They are irrecoverable and do not affect future production decisions.

Question 20

In which market structure do producers NOT see other producers as rivals?

Accepted Answer

Perfect competition (price-taking)

Supply, Producer Behavior, and Market Structures: A Mini-Textbook Review

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