Q: Which equation correctly represents a firm's profit?

$$\text{Profit} = \text{Total Revenue} - \text{Total Costs}$$

Question 1

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

Accepted Answer

There are significant barriers to entry and exit.

Question 2

Suppose the supply curve for a good is given by $$S(p) = -1 + p. $$What is the quantity supplied when the market price is $$p = 5$$?

Accepted Answer

$$S(5) = 4$$

Question 3

In the short run, which costs are considered sunk and should NOT affect a firm's supply decision?

Accepted Answer

Fixed costs

Question 4

A firm in a perfectly competitive market faces a market price of $$p = 10. $$Its marginal cost function is $$MC(q) = 2 + q. $$What quantity should the firm produce to maximize profit?

Accepted Answer

$$q = 8$$

Question 5

If the market price falls below the minimum of the average variable cost (AVC) curve, what should a profit-maximizing firm do in the short run?

Accepted Answer

Shut down production

Question 6

Which equation correctly represents a firm's profit?

Accepted Answer

$$	ext{Profit} = 	ext{Total Revenue} - 	ext{Total Costs}$$

Question 7

In a perfectly competitive market, what is the relationship between marginal revenue (MR) and price (p)?

Accepted Answer

$$MR = p$$

Question 8

A firm’s marginal cost of producing the 5th unit is $$MC(5) = 7. If $$the market price is $$p = 6$$, should the firm produce the 5th unit?

Accepted Answer

No, because $$MC(5) \u003e p$$

Question 9

Which of the following best explains why supply curves typically slope upward?

Accepted Answer

Because marginal cost increases as quantity increases

Question 10

If a firm’s average variable cost (AVC) at $$q = 10 is$$ $$AVC(10) = 8$$ and the market price is $$p = 12$$, what is the firm’s average revenue (AR) at $$q = 10$$?

Accepted Answer

$$AR(10) = 12$$

Question 11

Which of the following is a real-world example of a market that closely approximates perfect competition?

Accepted Answer

The crude oil market

Question 12

Suppose the marginal cost of producing oil increases due to stricter environmental regulations. What is the likely effect on the market supply curve for oil?

Accepted Answer

The supply curve shifts to the left

Question 13

A firm’s total revenue is given by $$TR(q) = p 	imes q. If$$ $$p = 15$$ and $$q = 20$$, what is the total revenue?

Accepted Answer

$$TR = 300$$

Question 14

If the market price is $$p = 25$$ and a firm’s marginal cost curve is $$MC(q) = 5 + 2q$$, what is the profit-maximizing output?

Accepted Answer

$$q = 10$$

Question 15

Which of the following statements about fixed costs is TRUE in the context of short-run supply decisions?

Accepted Answer

Fixed costs are irrelevant to the firm’s short-run supply decision.

Question 16

If a firm’s marginal cost curve crosses the market price line twice, which crossing should the firm use to determine its profit-maximizing output?

Accepted Answer

The second (rightmost) crossing

Question 17

In the short run, which of the following is most likely to be a fixed cost for an oil company?

Accepted Answer

The cost of purchasing an oil tanker

Question 18

If the market supply curve is the horizontal sum of all individual firms’ supply curves, what happens to the market supply if more firms enter the market?

Accepted Answer

The market supply curve shifts to the right

Question 19

A firm’s average variable cost (AVC) is minimized at $$q = 6. If $$the market price is above the minimum AVC, what is the firm’s short-run supply curve?

Accepted Answer

The portion of the marginal cost curve above the minimum AVC

Question 20

Which of the following best describes the law of supply?

Accepted Answer

As price increases, quantity supplied increases

Short-Run Supply and Perfect Competition: Principles of Microeconomics Study Notes

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