Question 1

Any firm's total revenue is

Accepted Answer

A)  P/sales in units. 
B)  MR/sales in units. 
C)  P x sales in units. 
D)  MR x sales in units. 
A)  P/sales in units. 
B)  MR/sales in units. 
C)  P x sales in units. 
D)  MR x sales in units.

Question 2

If at the current level of output a firm's price exceeds its marginal revenue and its marginal revenue exceeds its marginal cost, then to maximise profits it should

Accepted Answer

A)  reduce price and raise output. 
B)  keep price the same and increase output. 
C)  keep price the same and reduce output. 
D)  reduce price and output. 
E)  raise price and output. 
A)  reduce price and raise output. 
B)  keep price the same and increase output. 
C)  keep price the same and reduce output. 
D)  reduce price and output. 
E)  raise price and output.

Question 3

The firm in the following diagram is currently producing at output Q.
  The firm will shut down in the short term if

Accepted Answer

A)  AR = AVC 
B)  AR  AVC 
D)  AVC < AC 
A)  AR = AVC 
B)  AR  AVC 
D)  AVC < AC

Question 4

In the short run firms will cease production once price falls below ATC.

Accepted Answer

A) True 
 B)False

Question 5

For a price- maker, the slope of the marginal revenue curve is always greater than the slope of the average revenue curve.

Accepted Answer

A) True 
 B)False

Question 6

If the fourth unit of a product is sold at £10 and the fifth unit is sold at £8, what does this tell us about the firm?

Accepted Answer

A)  The firm is a monopolist. 
B)  Need more information to say. 
C)  The firm is a price- maker. 
D)  The firm is a price- taker. 
A)  The firm is a monopolist. 
B)  Need more information to say. 
C)  The firm is a price- maker. 
D)  The firm is a price- taker.

Question 7

A monopoly that makes a loss will

Accepted Answer

A)  change production so that marginal cost equals marginal revenue. 
B)  continue production providing total revenue covers fixed costs. 
C)  always shut down and leave the industry. 
D)  continue production providing total revenue covers variable costs. 
A)  change production so that marginal cost equals marginal revenue. 
B)  continue production providing total revenue covers fixed costs. 
C)  always shut down and leave the industry. 
D)  continue production providing total revenue covers variable costs.

Question 8

The following diagram shows a firm facing a downward- sloping demand curve.
   The profit- maximising quantity is equal to the point of unit elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 9

A decrease in income will cause a shift in the demand curve and so revenue will be affected.

Accepted Answer

A) True 
 B)False

Question 10

If a firm is not making economic profit it should leave the industry.

Accepted Answer

A) True 
 B)False

Question 11

For a price- taker, average revenue is always more than marginal revenue.

Accepted Answer

A) True 
 B)False

Question 12

Should a firm that is making a loss close down?

Accepted Answer

In the short run it should continue prod

Question 13

In the short run firms can continue production once price falls below average total cost.

Accepted Answer

A) True 
 B)False

Question 14

The price- taking competitive equilibrium of a large number of identical firms implies that

Accepted Answer

A)  the net revenue of each firm is zero. 
B)  no firm earns economic profits in the long run. 
C)  no firm can earn more from its assets by investing them elsewhere. 
D)  B and C 
A)  the net revenue of each firm is zero. 
B)  no firm earns economic profits in the long run. 
C)  no firm can earn more from its assets by investing them elsewhere. 
D)  B and C

Question 15

A monopoly that makes a loss will continue production providing total revenue covers variable costs.

Accepted Answer

A) True 
 B)False

Question 16

For a price- making firm, when marginal revenue is above zero the demand curve is

Accepted Answer

A)  unitarily elastic. 
B)  perfectly inelastic. 
C)  inelastic. 
D)  elastic. 
A)  unitarily elastic. 
B)  perfectly inelastic. 
C)  inelastic. 
D)  elastic.

Question 17

A price- taker is a firm which has no control over its prices.

Accepted Answer

A) True 
 B)False

Question 18

Explain why fixed costs do not exist in the long run and why they are typically irrelevant to the production decision in the short run.

Accepted Answer

The definition of the long run is the pe

Question 19

In the short run, under what circumstances will a firm shut down?

Accepted Answer

A firm would shut down in the short run

Question 20

Why does a firm set price equal to the level suggested by the average revenue curve?

Accepted Answer

The average revenue curve is the same as

Exam 10: Revenue and Profit

Any firm's total revenue is

If at the current level of output a firm's price exceeds its marginal revenue and its marginal revenue exceeds its marginal cost, then to maximise profits it should

The firm in the following diagram is currently producing at output Q. The firm will shut down in the short term if

In the short run firms will cease production once price falls below ATC.

For a price- maker, the slope of the marginal revenue curve is always greater than the slope of the average revenue curve.

If the fourth unit of a product is sold at £10 and the fifth unit is sold at £8, what does this tell us about the firm?

A monopoly that makes a loss will

The following diagram shows a firm facing a downward- sloping demand curve. The profit- maximising quantity is equal to the point of unit elasticity of demand.

A decrease in income will cause a shift in the demand curve and so revenue will be affected.

If a firm is not making economic profit it should leave the industry.

For a price- taker, average revenue is always more than marginal revenue.

Should a firm that is making a loss close down?

In the short run firms can continue production once price falls below average total cost.

The price- taking competitive equilibrium of a large number of identical firms implies that

A monopoly that makes a loss will continue production providing total revenue covers variable costs.

For a price- making firm, when marginal revenue is above zero the demand curve is

A price- taker is a firm which has no control over its prices.

Explain why fixed costs do not exist in the long run and why they are typically irrelevant to the production decision in the short run.

In the short run, under what circumstances will a firm shut down?

Why does a firm set price equal to the level suggested by the average revenue curve?

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

The Working of Competitive Markets

Business in a Market Environment

Demand and the Consumer

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Profit Maximisation Under Perfect Competition and Monopoly

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Pricing Strategy

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Firm

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Banking, Money and Interest Rates

Business Activity, Employment and Inflation

Demand-Side Policy

Supply-Side Policy

International Economic Policy

Filters