Q: Which equation correctly represents a firm’s economic profit?

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

Question 1

Which of the following best describes a 'price taker' in a perfectly competitive market?

Accepted Answer

A firm that must accept the market price and cannot influence it, selling all output at that price.

Question 2

In perfect competition, what is the relationship between marginal revenue (MR) and price (P)?

Accepted Answer

$$MR = P$$

Question 3

A maple syrup producer in a perfectly competitive market finds that at 10 cans per day, marginal cost (MC) equals marginal revenue (MR). What does this imply?

Accepted Answer

The producer is producing at the profit-maximizing output level.

Question 4

If a perfectly competitive firm’s average variable cost (AVC) is $$5, average total cost (ATC) is 8$$, and the market price is $6, what should the firm do in the short run?

Accepted Answer

Continue producing because price covers AVC, even though it does not cover ATC.

Question 5

Which equation correctly represents a firm’s economic profit?

Accepted Answer

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

Question 6

Suppose the market price for a product is $$8, and a firm’s marginal cost (MC) at 13 units is 10. $$What should the firm do to maximize profit?

Accepted Answer

Decrease output below 13 units.

Question 7

In the short run, when should a perfectly competitive firm shut down?

Accepted Answer

When price is less than average variable cost ($$P \u003c AVC).$$

Question 8

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

Accepted Answer

Firms have significant control over market price.

Question 9

If a firm in a perfectly competitive market is earning economic profit, what will happen in the long run?

Accepted Answer

New firms will enter, increasing supply and driving price down until economic profit is zero.

Question 10

Which formula represents marginal revenue (MR) for a perfectly competitive firm?

Accepted Answer

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

Question 11

A firm’s total cost (TC) for producing 10 units is $$51, and total revenue (TR) is 80. $$What is the firm’s economic profit?

Accepted Answer

$$29$$

Question 12

Which of the following best explains why perfect competition is considered efficient?

Accepted Answer

Because firms maximize consumer surplus and produce at the point where $$P = MC.$$

Question 13

If the market price falls below a firm’s average variable cost, what is the firm’s loss if it shuts down?

Accepted Answer

Equal to its total fixed cost.

Question 14

Which of the following market types is characterized by a single firm with no close substitutes and high barriers to entry?

Accepted Answer

Monopoly

Question 15

Suppose a firm’s marginal cost (MC) is $$7, and the market price is 8. $$What should the firm do?

Accepted Answer

Increase output to maximize profit.

Question 16

Which of the following is true about the demand curve faced by a perfectly competitive firm?

Accepted Answer

It is perfectly elastic at the market price.

Question 17

In the long run, what happens to firms in a perfectly competitive market that incur economic losses?

Accepted Answer

They exit the market, reducing supply and increasing price.

Question 18

Which of the following best describes the short-run supply curve for a perfectly competitive firm?

Accepted Answer

The portion of the marginal cost curve above average variable cost.

Question 19

If a technological innovation lowers the average cost of production for all firms in a perfectly competitive market, what is the likely long-run effect?

Accepted Answer

Market supply increases, price falls, and economic profit returns to zero.

Question 20

Which of the following equations represents the profit-maximizing condition for a perfectly competitive firm?

Accepted Answer

$$P = MC$$

Perfect Competition and Firm Behavior in Microeconomics

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