Q: Given the following formulas, which correctly represents economic profit?

$$\text{Economic Profit} = \text{TR} - \text{TC}$$, where TC includes both explicit and implicit costs

Q: Which equation correctly represents the profit per unit for a firm?

$$\text{Profit per unit} = \text{P} - \text{ATC}$$

Q: If a firm is experiencing losses in the short run, under what condition should it continue to produce?

If $$\text{P} \u003e \text{AVC}$$

Q: In the long run, what is the equilibrium condition for a firm in a perfectly competitive market?

$$\text{P} = \text{MC} = \text{ATC}$$

Q: Which formula represents average revenue (AR)?

$$\text{AR} = \frac{\text{TR}}{\text{Q}}$$

Q: In a perfectly competitive market, what is the relationship between price, marginal revenue, and average revenue?

$$\text{P} = \text{MR} = \text{AR}$$

Question 1

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

Accepted Answer

Significant barriers to entry

Question 2

In a perfectly competitive market, what happens if a firm tries to sell its product at a price higher than the market price?

Accepted Answer

The firm will sell zero units

Question 3

Given the following formulas, which correctly represents economic profit?

Accepted Answer

$$	ext{Economic Profit} = 	ext{TR} - 	ext{TC}$$, where TC includes both explicit and implicit costs

Question 4

If a firm in a perfectly competitive market is earning positive economic profits, what is likely to happen in the long run?

Accepted Answer

New firms will enter the market, increasing competition and driving profits to zero

Question 5

A firm in a perfectly competitive market faces a demand curve that is:

Accepted Answer

Perfectly elastic

Question 6

If the market price is $4 per bushel and a farmer produces 5 bushels, what is the total revenue?

Accepted Answer

$$\20$

Question 7

At what output level does the farmer in the table maximize profit?

Accepted Answer

Q = 7

Question 8

Which equation correctly represents the profit per unit for a firm?

Accepted Answer

$$	ext{Profit per unit} = 	ext{P} - 	ext{ATC}$$

Question 9

If a firm is experiencing losses in the short run, under what condition should it continue to produce?

Accepted Answer

If $$	ext{P} \u003e 	ext{AVC}$$

Question 10

In the long run, what is the equilibrium condition for a firm in a perfectly competitive market?

Accepted Answer

$$	ext{P} = 	ext{MC} = 	ext{ATC}$$

Question 11

Which of the following best describes a price taker?

Accepted Answer

A firm that must accept the market price and cannot influence it

Question 12

If a firm’s marginal revenue is greater than its marginal cost, what should the firm do?

Accepted Answer

Increase output

Question 13

Which formula represents average revenue (AR)?

Accepted Answer

$$	ext{AR} = \frac{	ext{TR}}{	ext{Q}}$$

Question 14

If a firm shuts down temporarily in the short run, what costs does it still have to pay?

Accepted Answer

Fixed costs

Question 15

Which part of the marginal cost curve represents the firm’s supply curve in the short run?

Accepted Answer

The portion above the AVC curve

Question 16

If a firm is earning zero economic profit, what does this imply about its accounting profit?

Accepted Answer

Accounting profit is positive and equal to implicit costs

Question 17

Which of the following is a real-world example that closely resembles a perfectly competitive market?

Accepted Answer

Grain farming

Question 18

If a firm’s total revenue is $$32 and its total cost is 28.50$$, what is its profit?

Accepted Answer

$$3.50$$

Question 19

In a perfectly competitive market, what is the relationship between price, marginal revenue, and average revenue?

Accepted Answer

$$	ext{P} = 	ext{MR} = 	ext{AR}$$

Question 20

If a firm is experiencing negative economic profit in the long run, what should it do?

Accepted Answer

Permanently exit the industry

Chapter 12

Study Guide - Practice Questions

Study Guide - Flashcards