If a firm sets marginal revenue equal to marginal cost, it will make an economic profit. Indicate whether the statement is true or false ANSWER False. When a firm sets MR=MC it maximizes profits but the profit-maximizing level of output might still be negative (the smallest loss possible).
Date: September 9th, 2020
Suppose a monopolist has TC = 40 + 10Q + Q2, and the demand curve it faces is p = 130 – 2Q. What is the Lerner index of this profit-maximizing monopolist? A) 0.222 B) 0.35 C) 0.444 D) 0.50 ANSWER C
Date: September 9th, 2020
If a firm goes out of business because of negative economic profits, its books A) might indicate a positive accounting profit. B) might indicate that opportunity costs were zero. C) might indicate that taxes are too high. D) might suggest a mistaken value of explicit costs. ANSWER A
Date: September 9th, 2020
If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be TRUE at that level of output? A) p > MC B) MR > MC C) p ¥ AVC D) All of the above. ANSWER C
Date: September 9th, 2020
The Lerner Index is derived from the profit-maximizing condition of a firm. Indicate whether the statement is true or false ANSWER True . Start out with MR = MC, realize that MR = P(1 + 1/e), and solve.
Date: September 9th, 2020
Suppose a firm has the following total cost function: TC = 50 + 2q2. What is the minimum price necessary for the firm to earn profit? A) p = $20 B) p = $30 C) p = $35 D) p = $40 ANSWER A
Date: September 9th, 2020
If a firm doesn’t make an economic profit, it will shut down. Indicate whether the statement is true or false ANSWER False. The firm compares its losses from operating with its losses when shutting down and will shut down if the latter loss is less.
Date: September 9th, 2020
As the ratio of price to marginal cost decreases, the Lerner index A) stays the same. B) increases. C) decreases. D) can increase or decrease depending upon the shape of the demand curve. ANSWER C
Date: September 9th, 2020
If a monopoly discovers that the demand for its output has become more elastic at the original output level, then it will respond by A) producing more and setting a higher price. B) setting a lower price. C) setting a higher price. D) producing more while leaving price unchanged. ANSWER B
Date: September 9th, 2020
A small business owner earns $50,000 in revenue annually. The explicit annual costs equal $30,000. The owner could work for someone else and earn $25,000 annually. The owner’s business profit is ________ and the economic profit is ________. A) $20,000; $5,000 B) $20,000; -$5,000 C) $25,000; -$5,000 D) $45,000; -$5,000 ANSWER B
Date: September 9th, 2020
