Quiz V
Profit Maximization and Competition
1.Economic profit is defined as:
A.
B.
C.
D.
Business profit minus explicit costs
Total revenue minus total explicit cost
Normal profit minus implicit cost
Total revenue minus explicit cost minus
implicit cost
E. Total revenue minus average variable cost
F. Price times quantity sold
2. To a small firm in a
competitive market:
A. The demand it faces is horizontal, reflecting a
constant price
B. The demand is vertical but supply is downwardsloping
C. The price increases as it produces and supplies
greater quantities of output
D. The price is variable while the quantity is
constant
E. Profit is always zero
3. Which of the following is profit?
(There may be more than one answer.)
A.
B.
C.
D.
E.
F.
G.
H.
Total Revenue – Total Variable Cost
Total Revenue – Total Cost
Q ( P – TVC - TFC)
Q ( P – AVC )
Q ( P – AFC – AVC)
(P.Q) – Total Variable Cost
(P.Q) – TVC – TFC
(P.Q) – AVC -AFC
4. The short-run marginal cost of a single firm
tends to become upward-sloping at some level
of output because
A.
B.
C.
D.
E.
wages are not constant
of competition
of increasing returns to the variable input
of diminishing returns to the variable input
The market price increases as more output is
produced and supplied to the market
F. of principle of diminishing marginal utility
5. Which of the following is not one of the
characteristics of a perfectly competitive
market?
A. Many buyers and many sellers
B. Each firm determines the price it wants to charge
according to its cost of production
C. All firms produce the same (homogeneous)
product
D. All buyers and sellers have free access to
market information
E. Firms are free to enter and exit the industry