Exam 8: Profit Maximization

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client. Table 8.2 -In Table 8.2,assume that Holmes's total fixed cost is zero.Compute the profit earned by the agency with two clients.

A firm maximizes its profit at a level of output,where the additional revenue earned by selling an extra unit of the output is equal to the additional cost borne for producing that extra unit of the output.

The following graph shows the marginal revenue (MR) and marginal cost (MC) curves of an imperfectly competitive firm. Figure 8.2 - According to Figure 8.2,the firm is maximizing profit at a quantity of _____ units.

Goodspeed Automobiles manufactures 100 disc brake cylinders.At this output level,its marginal revenue is equal to its marginal cost.If the revenue per unit of output is $500 and the per unit cost is $350,its profit is:

If a firm's marginal revenue is greater than its marginal cost,then:

Scenario 8.1 Jane left her job at Siemens and started her own boutique.She used to earn $50,000 annually at Siemens.She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture.She agreed to repay the loan with 10% interest.Her business is bringing in $80,000 annually.She has rent and labor expenses of $15,000.Also assume that Jane could have used her own money i.e.$20,000 to buy stocks in Intel which would have returned 5% to her last year. -Refer to Scenario 8.1.Compute Jane's economic profit.

In a perfectly competitive industry,the price of good A is $2.If a firm in this inudustry decides to increase its price to $2.50,it will:

Suppose at a certain quantity of output,a firm's average-total-cost curve lies above its demand curve.At this quantity of output,the firm:

The table given below shows the total revenue and total cost of producing a commodity. Table 8.1 - In Table 8.1,the marginal cost of producing the sixth unit of output is equal to _____.

Why does a monopolist face the market demand curve?

Each firm under monopolistic competition produces a unique product which does not have a close substitute.

The table given below shows the total revenue and total cost of producing a commodity. Table 8.1 - In Table 8.1,if the firm produces five units of output,it makes a profit of _____.

The table given below shows the total revenue and total cost of producing a commodity. Table 8.1 - In Table 8.1,the marginal revenue from the sixth unit of output is:

Under imperfect competition:

The market power enjoyed by a particular producer depends on the number of firms in the industry.

Economic profit includes all opportunity costs.

Suppose a mechanic uses $150,000 of his own money to start a business.The rate of interest he could earn in a savings account is 5 percent,and the rate of interest he could earn by investing in bonds is 8 percent.What is the opportunity cost of capital when the mechanic uses his money to start his own business?

A profit-maximizing firm will produce the level of output at which:

The ordering of market structures from most market power to least market power (where market power is the ability to set its own price) is:

Economic profits is the difference of total revenue and total costs including the opportunity costs of the resources used in the business.