Question

1.)Accounting profit will always be less than economic profit.

True

False

2.)Which type of firm does not rely on the MR=MC rule for profit-maximizing output?

	A.	Perfect competition
	B.	Monopoly
	C.	Oligopoly
	D.	Monopolistic competition
	E.	All of these rely on MR=MC

3.)The exercise where firms analyze situations and make decisions based on interdependent payoffs is called __________.

		A.)Game Theory
		B.)Collusion
		C.)Cartel Theory
		D.)Rent Seeking Behavior

4.)Raising the minimum wage above market equilibrium is likely to __________.

		A.)Cause more firms to enter the market
		B.)Send many firms to bankruptcy
		C.)Cause firms to rethink staffing levels
		D.)Cause firms to move to a more competitive market structure

Answer 1

1.

Since accounting profit=TR - explicit cost

Economic profit=TR-implicit cost- explicit cost

Hence accounting profit will be always greater than economic profit.

Hence the given statement is false.

2.

Since in perfect competition Price and MR same.

The profit-maximizing condition of the perfectly competitive firm will be

MR=P=MC

Monopoly condition

MR=MC

Monopolistic competitive firm profit-maximizing condition

MR=MC

In oligopoly also the profit-maximizing decision are made by the following condition

MR=MC

It means MR=MC condition is applicable all given market condition.

Hence option E is the correct answer.

3.

The exercise where firms analyze situations and make decisions based on interdependent payoffs is called game theory. This is because in game theory firms make decision based on interdependent payoffs.

Hence option A is the correct answer.

4.

Since the price floor is the legal minimum price which can be charged and it is set above the equilibrium price. It leads surplus of outputs.

So when the price floor is set above the equilibrium price, only then it is effective but when it is set either below the equilibrium price or at the equilibrium price, then it will be ineffective. So there will be no unintended inventory and market gets cleared.

Since minimum wage are the example of price floor.

Hence raising the minimum wage above market equilibrium is likely to Cause firms to rethink staffing levels.

This is because at higher minimum wage firms would like to keep only highly skilled and productive workers only.

Hence option C is the correct answer.