Deck 8: Profit Maximization and Supply

Question 1

Suppose a farmer is a price taker for soybean sales with cost functions given by
TC = .1q² + 2q + 30
MC = .2q + 2
If P = 6 the profit-maximizing level of profits is

A)10
B)20
C)30
D)-10

Answer 1

10

Question 2

Suppose a farmer is a price taker for soybean sales with cost functions given by ?
TC = .1q² + 2q + 100
MC = .2q + 2
The firm's supply curve is given by

A)q = 5P - 10
B)q = .2P +2
C)q = 10P - 2
D)q = 2P - 5

Answer 2

q = 5P - 10

Question 3

The markup pricing technique involves determining the selling price of a good by adding a profit markup to minimum average cost.This would result in maximum profits only if

A)average cost were constant.
B)the markup were zero.
C)the markup varied with the elasticity of demand.
D)demand were inelastic.

Answer 3

the markup varied with the elasticity of demand.

Question 4

If price is equal to short-run average variable cost,this price is known as

A)the break-even price.
B)the profit-maximizing price.
C)the shutdown price.
D)the revenue-maximizing price.

Question 5

Suppose a farmer is a price taker for soybean sales with cost functions given by ?
TC = .1q² + 2q + 30
MC = .2q + 2
If P = 6 ,the profit-maximizing level of output is

A)10
B)20
C)40
D)80

Question 6

If the demand faced by a firm is elastic,selling one less unit of output will

A)increase revenue.
B)decrease revenue.
C)keep revenues constant.
D)decrease price.

Question 7

In order to maximize profits,a firm that can sell all it wants without affecting price should produce

A)where average variable costs are minimized.
B)where marginal cost is equal to average variable costs.
C)where marginal cost is equal to price.
D)where marginal cost is a minimum.

Question 8

A firm that sought to "maximize market share" would choose to produce an output level for which marginal revenue was equal to

A)marginal cost
B)average cost.
C)price.
D)zero.

Question 9

If the demand curve a firm faces shifts to the right,usually

A)it would be impossible to tell whether the marginal revenue curve shifts.
B)the marginal revenue curve would shift to the left.
C)the marginal revenue curve would shift to the right.
D)the marginal revenue curve would not shift.

Question 10

In order to maximize profits,a firm should produce at the output level for which

A)average cost is minimized.
B)marginal revenue equals marginal cost.
C)marginal cost is minimized.
D)price minus average cost is as large as possible.

Question 11

In general,microeconomic theory assumes that firms attempt to maximize the difference between

A)total revenue and accounting costs.
B)price and marginal cost.
C)total revenues and economic costs.
D)economic costs and average cost.

Question 12

If a firm wished to maximize total revenues it should produce where

A)marginal cost is zero.
B)marginal revenue is zero.
C)marginal revenue is equal to marginal cost.
D)marginal revenue is equal to price.

Question 13

A firm's marginal revenue is defined as

A)the ratio of total revenue to total quantity produced.
B)the additional output produced by lowering price.
C)the additional revenue received due to technical innovation.
D)the additional revenue received when selling one more unit of output.

Question 14

If the demand faced by a firm is inelastic,selling one more unit of output will

A)increase revenues.
B)decrease revenues.
C)keep revenues constant.
D)increase profits.

Question 15

If a firm is a price taker,its marginal revenue is

A)equal to market price.
B)less than market price.
C)greater than market price.
D)a multiple of market price that may be either greater than or less than one.

Question 16

It is usually assumed that a perfectly competitive firm's supply curve is given by its marginal cost curve.In order for this to be true,which of the following additional assumptions are necessary? I.That the firm seek to maximize profits.
II.That the marginal cost curve be positively sloped.
III.That price exceeds average variable cost.
IV.That price exceeds average total cost.

A)All of the above.
B)I and II but not III and IV.
C)I and III but not II and IV.
D)I and II only.
E)I,II and III,but not IV.

Question 17

Which of the following conditions would result in the short run marginal cost curve not correctly reflecting the supply behavior of a profit maximizing firm?

A)The firm is a price taker.
B)Price exceeds average total cost.
C)The elasticity of demand facing the firm is ?3.
D)the firm can vary several inputs in the short run.

Question 18

If a firm's marginal revenue is below its marginal cost,an increase in production will usually

A)increase profits.
B)leave profits unchanged.
C)decrease profits.
D)increase marginal revenue.

Question 19

A firm's total revenue is equal to

A)total quantity produced times marginal cost.
B)total quantity produced times market price.
C)marginal revenue times total quantity produced.
D)market price divided by total quantity produced.

Question 20

If demand is inelastic,marginal revenue will be

A)positive.
B)zero.
C)negative.
D)constant.

Question 21

Suppose a farmer is a price taker in soybeans with cost functions given by ?
TC = .1q² + 2q + 30
MC = .2q + 2
Suppose the farmer has to purchase a license for $50 per period in order to stay in business. In this case,its new total cost function is

A)still TC = .1q² + 2
B)TC = .1q² + .2q + 80
C)TC = .1q² + 2q + 50
D)TC = 50

Question 22

Suppose a farmer is a price taker for soybean sales with cost functions given by ?
TC = .1q² + 2q + 30
MC = .2q + 2
The profit maximizing level of output is

A)0
B)30
C)40
D)50

Question 23

An unregulated electric company is a monopolist and faces demand of Q = 50 - 10P. If the company has zero marginal costs,its profit-maximizing price is

A)0
B)1
C)2.5
D)5

Question 24

Suppose that a firm has to pay a 10% tax on revenue.The profit-maximizing level of output is ?

A)unaffected by the tax.
B)increased because of the tax.
C)decreased because of the tax.

Question 25

If an unregulated electric company is a monopolist,faces demand of Q = 100 - 50P,and has a constant marginal cost of 1,the profit-maximizing price is

A)0
B)1
C)1.5
D)2

Question 26

Suppose a farmer is a price taker in soybeans with cost functions given by ?
TC = .1q² + 2q + 100
MC = .2q + 2
Suppose the farmer has to purchase a license for $50 per period in order to stay in business. In this case,its marginal cost function is

A)still MC = .2q + 2
B)MC = .2q + 50
C)MC = .2q + 52
D)MC = 50

Question 27

Suppose that a firm has to pay a 10% tax on its total revenue.This has the effect of ?

A)flattening marginal cost.
B)increasing marginal revenue.
C)decreasing marginal cost.
D)decreasing marginal revenue.

Question 28

If an unregulated electric company is a monopolist and faces demand of Q = 50 - 10P.It has a constant marginal cost of 1 and must pay an environmental fee to the government of 0.2 per unit of output.In this situation,the profit-maximizing level of output is:

A)5
B)10
C)20
D)50

Question 29

If an unregulated electric company is a monopolist and faces demand of Q = 50 - 10P,its marginal revenue function is given by

A)
B)
C)
D)

Question 30

If an unregulated electric company is a monopolist,faces demand of Q = 100 - 50P,and has constant total costs,the profit-maximizing level of output is ?

A)50
B)100
C)25
D)12.5