$$Profit = (P - ATC) \times Q$$

$$(1.13 - 0.93) \times 1,225 = 245$$

Question 1

Which of the following best describes the three parts of the seller's problem in microeconomics?

Accepted Answer

Production, costs, and revenues

Question 2

In a perfectly competitive market, why can't an individual seller influence the market price?

Accepted Answer

Because there are so many buyers and sellers that no one is big enough to affect the price

Question 3

What is the definition of producer surplus?

Accepted Answer

The difference between the market price and the marginal cost curve

Question 4

Which condition is NOT required for a perfectly competitive market?

Accepted Answer

Sellers can set their own prices

Question 5

Why do sellers make decisions at the margin?

Accepted Answer

To optimize profit by comparing additional costs and additional revenues

Question 6

If the market price falls below the average variable cost (AVC), what should a firm do in the short run?

Accepted Answer

Shut down production

Question 7

Which formula correctly calculates profit for a firm?

Accepted Answer

$$Profit = (P - ATC) 	imes Q$$

Question 8

A bakery can’t buy another oven today but could in the future. What economic concept does this illustrate?

Accepted Answer

Short run vs. long run

Question 9

If a firm’s marginal cost curve is below the market price, what should the firm do?

Accepted Answer

Increase output

Question 10

Which of the following is a fixed factor of production in the short run?

Accepted Answer

Factory building

Question 11

What is the main reason for the law of diminishing returns in production?

Accepted Answer

Fixed capital in the short run

Question 12

If a firm faces a market price of $$1.13, average total cost of 0.93$$, and sells 1,225 units, what is its profit?

Accepted Answer

$$(1.13 - 0.93) 	imes 1,225 = 245$$

Question 13

Which of the following best describes the supply curve in a perfectly competitive market?

Accepted Answer

It is the portion of the marginal cost curve above average variable cost

Question 14

What is the opportunity cost in economic profit calculations?

Accepted Answer

The value of the next best alternative forgone

Question 15

If a market is perfectly competitive and firms are earning positive economic profits, what will happen in the long run?

Accepted Answer

New firms will enter, driving profits to zero

Question 16

Which of the following is true about the price elasticity of supply?

Accepted Answer

Elastic supply means quantity supplied is very responsive to price changes ($$E_s \u003e 1)$$

Question 17

Which scenario best illustrates the concept of free entry and exit in a perfectly competitive market?

Accepted Answer

A firm can easily start producing if profits are available and stop if losses occur

Question 18

If the marginal product of labor becomes negative, what is the most likely cause?

Accepted Answer

Too many workers and fixed capital in the short run

Question 19

Which of the following is NOT a reason for economies of scale?

Accepted Answer

Top-heavy management

Question 20

In the long run, what happens to firms with lower costs in a perfectly competitive market?

Accepted Answer

They earn positive economic rents (profits)

ECN104 Lecture 6

Study Guide - Practice Questions