Q: Profit is defined as:

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

Question 1

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, what should the firm do in the short run?

Accepted Answer

It is incurring a loss but should continue to operate.

Question 2

Suppose a wheat farmer faces a market price of $$3 per bushel. If the farmer's average variable cost is 2.50 $$and average total cost is $3.50 at the profit-maximizing output, what is the farmer's best short-run decision?

Accepted Answer

Continue producing to cover variable costs and part of fixed costs.

Question 3

Profit is defined as:

Accepted Answer

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

Question 4

A firm will break even when:

Accepted Answer

$$ P = ATC $$

Question 5

Which of the following is the best example of a perfectly competitive industry?

Accepted Answer

Wheat production

Question 6

The demand curve for an individual seller's product in perfect competition is:

Accepted Answer

Horizontal

Question 7

Allocative efficiency occurs when:

Accepted Answer

Marginal benefit equals marginal cost for the last unit produced.

Question 8

A monopolist's profit-maximizing output and price are found where:

Accepted Answer

Marginal revenue equals marginal cost, and price is set on the demand curve.

Question 9

In the long run, if the demand curve of a monopolistically competitive firm is tangent to its average total cost curve, what is the firm's economic profit?

Accepted Answer

The firm breaks even.

Question 10

Which of the following is NOT a characteristic of long-run equilibrium in a monopolistically competitive market?

Accepted Answer

Production is at minimum average total cost.

Question 11

A dominant strategy in game theory is:

Accepted Answer

A strategy that is best for a firm, no matter what strategies other firms use.

Question 12

Which of the following best describes an oligopoly compared to perfect competition?

Accepted Answer

There are entry barriers in oligopoly but not in perfect competition.

Question 13

Suppose a monopolist faces the following cost and demand curves: $$MC = ATC = 54 at$$ $$Q = 800$$, $$MR = MC at$$ $$Q = 630. $$What is the profit-maximizing output?

Accepted Answer

$$Q = 630$$

Question 14

In both monopolistically competitive and perfectly competitive industries:

Accepted Answer

There are many buyers and sellers.

Question 15

Economic efficiency in a free market occurs when:

Accepted Answer

The sum of consumer and producer surplus is maximized.

Question 16

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called:

Accepted Answer

A business strategy.

Question 17

Suppose a monopolistically competitive firm is producing at output $$Q_a$$ and charging price $$P_2. If $$the area $$0P_2cQ_a$$ represents total revenue, what does the area $$P_2cdP_3$$ represent?

Accepted Answer

Loss

Question 18

If a monopolistically competitive industry earns economic profits in the short run, what will happen in the long run?

Accepted Answer

New firms will enter the industry.

Question 19

Which of the following best describes the study of how people make decisions in situations where attaining their goals depends on their interactions with others?

Accepted Answer

Game theory

Question 20

Suppose a firm in a perfectly competitive market is producing where $$P = MC = AVC \u003c ATC. $$What is the firm's profit situation?

Accepted Answer

The firm is incurring a loss but should continue to operate in the short run.

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