Quiz V

1. Quiz V Profit Maximization and Competition

2. 1.Economic profit is defined as: • Business profit minus explicit costs • Total revenue minus total explicit cost • Normal profit minus implicit cost • Total revenue minus explicit cost minus implicit cost • Total revenue minus average variable cost • Price times quantity sold

3. 2. To a small firm in a competitive market: • The demand it faces is horizontal, reflecting a constant price • The demand is vertical but supply is downward-sloping • The price increases as it produces and supplies greater quantities of output • The price is variable while the quantity is constant • Profit is always zero

4. 3. Which of the following is profit?(There may be more than one answer.) • 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

5. 4. The short-run marginal cost of a single firm tends to become upward-sloping at some level of output because • 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 • of principle of diminishing marginal utility

6. 5. Which of the following is not one of the characteristics of a perfectly competitive market? • Many buyers and many sellers • Each firm determines the price it wants to charge according to its cost of production • All firms produce the same (homogeneous) product • All buyers and sellers have free access to market information • Firms are free to enter and exit the industry