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Question 1Complete
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Question 2
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Economists assume that the goal of the firm is to
break-even in the long run.
minimise implicit costs.
maximise total revenue.
maximise profits.
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Economists assume that the goal of the firm is to maximise profits.
Question 3
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Use the diagram below which diagram shows the short-run conditions of a firm in a perfectly
competitive market to answer the question.
,In the long run, ____ firms will ____ the industry so that the market supply curve shifts to the _____,
until prices ______ sufficiently so that all firms make a normal profit only.
new firms; enter; right; decrease.
existing firms; exit; left; increase.
existing firms; exit; right; decrease.
new firms; enter; left; increase.
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Firms are making economic profits. This will encourage new firms to enter the market, leading to an
increase in supply shown by a rightward shift of the supply curve. The
market price will decrease until normal profits are made. There will thus be no incentive or
inducement for new firms to enter the industry or to leave the industry in the long run, as all firms
in the industry will only make normal profits.
Question 4
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At what price should a firm produce to maximise profits in a perfectly competitive market?
where price equals marginal revenue
where price equals average revenue
where price equals marginal cost
where price equals total revenue
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, Marginal revenue is the extra revenue you receive when you sell 1 more product and is therefore
per definition equal to the price of the product, thus MR = P. This holds regardless of the output
level and is not a unique qualifier for profit maximisation. To maximise profits a firm must ensure
the extra revenue (MR or then P) is equal to the extra cost (MC).
Question 5
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A monopoly is a
single seller of a product that has no close substitutes.
small group of producers with similar products.
single buyer of raw materials.
large number of producers each with a small share of the total market output.
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A monopoly is a single seller of a product that has no close substitutes.
Question 6
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What will happen if a shoe firm sells its shoes at a price lower than the opportunity cost of the
inputs used in the production process?
The firm will possibly make an economic profit and an accounting loss.
The firm will possibly make an accounting profit but will make an economic loss.
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