Q: Which formula correctly calculates a firm's profit in the short run?

$$\text{Profit} = Q \times (P - ATC)$$

Question 1

In perfect competition, at what point does a firm maximize its profit?

Accepted Answer

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

Question 2

A firm in perfect competition faces a market price of $$20, produces 100 units, and has an average total cost (ATC) of 15. $$What is the firm's total profit?

Accepted Answer

$$500$$

Question 3

If a firm's price is below its average variable cost ($$P \u003c AVC) in $$the short run, what should the firm do?

Accepted Answer

Shut down immediately

Question 4

Which formula correctly calculates a firm's profit in the short run?

Accepted Answer

$$	ext{Profit} = Q 	imes (P - ATC)$$

Question 5

A firm produces 150 units at a market price of $$12. Its average total cost (ATC) is 14. $$What is the firm's total profit?

Accepted Answer

$$-300$$

Question 6

Why does a firm stay open in the short run even if it is making losses?

Accepted Answer

Because price covers average variable cost ($$P \u003e AVC)$$

Question 7

At the shutdown point, which condition must be true?

Accepted Answer

$$P = AVC$$

Question 8

If a firm's marginal cost at $$Q = 100 is$$ $$8$$, average variable cost is $$10$$, and market price is $$8$$, should the firm produce in the short run?

Accepted Answer

No, because $$P \u003c AVC$$

Question 9

Which of the following is NOT a condition for profit maximization in perfect competition?

Accepted Answer

$$ATC is $$minimized

Question 10

A firm in perfect competition has $$MC = P at$$ $$Q = 120$$, $$ATC = 10$$, and market price $$P = 12. $$What is the firm's profit at this output?

Accepted Answer

$$240$$

Question 11

What does the minimum point of average total cost (ATC) represent in the long run?

Accepted Answer

The lowest cost per unit, determining long-run supply entry/exit

Question 12

If a firm’s average variable cost (AVC) is $$10$$, average total cost (ATC) is $$12$$, and market price is $$15$$, what can be said about the firm’s short-run decision?

Accepted Answer

The firm will stay open and earn a profit

Question 13

Which graphical area represents profit on a cost curve diagram for a perfectly competitive firm?

Accepted Answer

The rectangle between price and ATC, width $$Q$$

Question 14

A firm produces 80 units at a market price of $$25. $$Its average total cost (ATC) is $$20. $$What is its total profit?

Accepted Answer

$$400$$

Question 15

If a firm’s marginal cost (MC) at $$Q = 50 is$$ $$20$$, average total cost (ATC) is $$20$$, and market price is $$20$$, what is the firm’s profit?

Accepted Answer

$$0$$

Question 16

Which of the following statements is TRUE about profit maximization in any market structure?

Accepted Answer

Profit is maximized where $$MR = MC$$

Question 17

A firm in perfect competition has $$MC = 13 at$$ $$Q = 80$$, $$ATC = 12$$, and market price $$P = 18. $$What is the firm’s total profit?

Accepted Answer

$$480$$

Question 18

If a firm’s price equals its average total cost ($$P = ATC$$), what is its economic profit?

Accepted Answer

$$0$$

Question 19

Which point on the cost curves is NOT associated with profit maximization?

Accepted Answer

Minimum of $$MC$$

Question 20

A firm faces a market price of $$18$$, produces 100 units, and has an average total cost (ATC) of $$22. $$What is its total profit?

Accepted Answer

$$-400$$

Profit Maximization and Firm Behavior in Perfect Competition

Study Guide - Practice Questions

Study Guide - Flashcards