Question

1. According to the marginal approach to profit maximization,

a) firms should equate total revenue and marginal cost when choosing the optimal output level.

b) firms should take any action that increases revenue more than costs.

c) economic profit is zero in the long run.

d) marginal cost declines until it reaches marginal revenue at the profit-maximizing output level.

e) marginal costs eventually diminish as more output is produced.

2. Jerry operates in the perfectly competitive paper clip industry, where the market price is $2. At Jerry's profit maximizing output level of 10 units, he faces an average total cost of $3 and an average variable cost of $1. Which of the following is true?

a) Jerry should shut down since he will lose $20 if he produces the 10 units

b) Jerry should produce the 10 units since he will ear a profit of $10 by doing so

c) Jerry should decrease his output to get his costs low enough to break even

d) Jerry should produce the 10 units even though he will lose $10 since he would lose $20 if he shut down

e) Jerry should produce the 10 units even though he will lose $20 since he would lose $30 if he shut down

3. To find the long-run number of firms in a competitive market,

a) multiply the price by quantity

b) divide the industry output (Q*) by the optimal scale (q*)

c) multiply the industry output (Q*) by the optimal scale (q*)

d) divide the average total cost by the marginal cost.

e) add the industry output (Q*) to the marginal cost

Answer 1