Q: Which equation correctly represents profit for a firm?

$$\ Profit = (P \times Q) - TC \ $$

Question 1

In a perfectly competitive market, which of the following is true about the relationship between price and marginal revenue for an individual firm?

Accepted Answer

Price is equal to marginal revenue.

Question 2

A firm in a perfectly competitive market should shut down in the short run if:

Accepted Answer

Price is less than average variable cost.

Question 3

Which equation correctly represents profit for a firm?

Accepted Answer

$$\ Profit = (P 	imes Q) - TC \ $$

Question 4

In the long run, entry and exit of firms in a perfectly competitive market will result in:

Accepted Answer

Zero economic profit for all firms.

Question 5

Which of the following best describes allocative efficiency in a perfectly competitive market?

Accepted Answer

Production occurs where $$\ P = MC \ .$$

Question 6

Suppose a perfectly competitive firm faces the following costs: $$\ ATC = 10 \ $$, $$\ AVC = 7 \ $$, and the market price is $$\ P = 8 \ . $$What should the firm do in the short run?

Accepted Answer

Produce because $$\ P \u003e AVC \ .$$

Question 7

Which of the following is NOT a characteristic of monopolistic competition?

Accepted Answer

Firms sell identical products.

Question 8

For a monopolistically competitive firm, the profit-maximizing output is found where:

Accepted Answer

$$\ MR = MC \ $$

Question 9

If a monopolistically competitive firm is earning economic profits in the short run, what will happen in the long run?

Accepted Answer

New firms will enter, driving profits to zero.

Question 10

Which formula correctly calculates marginal revenue for a monopolistically competitive firm?

Accepted Answer

$$\ MR = \frac{\Delta TR}{\Delta Q} \ $$

Question 11

Which of the following best explains why perfectly competitive firms are productively efficient?

Accepted Answer

They produce at the lowest possible average total cost.

Question 12

A monopolistically competitive firm faces a downward-sloping demand curve. What does this imply about its marginal revenue curve?

Accepted Answer

Marginal revenue curve lies below the demand curve.

Question 13

Which of the following is true about the long-run supply curve in an increasing-cost industry?

Accepted Answer

It slopes upward.

Question 14

If a perfectly competitive firm is breaking even, which of the following must be true?

Accepted Answer

$$\ P = ATC \ $$

Question 15

Which of the following is a result of advertising in monopolistic competition?

Accepted Answer

The demand curve becomes more inelastic.

Question 16

Suppose a monopolistically competitive firm sets $$\ P \u003e MC \  at $$its profit-maximizing output. What does this indicate about allocative efficiency?

Accepted Answer

The firm is not allocatively efficient.

Question 17

Which of the following is true about excess capacity in monopolistic competition?

Accepted Answer

Firms produce below the lowest possible average total cost.

Question 18

A perfectly competitive firm’s supply curve in the short run is:

Accepted Answer

Its marginal cost curve above average variable cost.

Question 19

Which of the following is NOT a source of efficiency in perfectly competitive markets?

Accepted Answer

Excess capacity.

Question 20

If a firm in a perfectly competitive market increases its output, what happens to the market price?

Accepted Answer

The market price remains unchanged.

Exam 5 Study Guide: Perfect Competition and Monopolistic Competition

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