Chapter 09 - Profit Maximization

Quiz 11
1. (p. 2) The simplified profit maximization equation is
A. Profit = Revenue - Cost
B. Profit = Revenue + Cost
C. Profit = Revenue/Cost
D. Profit + Revenue x Cost
2. (p. 5) A price-taking firm's variable cost function is C = Q3, where Q is the output per week.
It has a sunk fixed cost of $2,000 per week. Its marginal cost is MC = 3Q2. What is the profit
maximizing output if the price is P = $192?
A. 0
B. 6
C. 8
D. 10
3. (p. 6) When a firm's profit maximizing sales level is positive, its marginal revenue is
______ its marginal cost at that quantity.
A. Greater than
B. Less than
C. Equal to
D. Less than or equal to
4. (p. 6) A firm is a ______ when it can sell as much as it wants at some given price P, but
nothing at any higher price.
A. Monopoly
B. Oligopoly
C. Price taker
D. Price setter
5. (p. 9) A firm that is a price taker faces a perfectly ______ demand curve.
A. Horizontal
B. Vertical
C. Inelastic
D. Convex

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Chapter 09 - Profit Maximization

6. (p. 9) Firms in perfectly competitive markets take the ______ as given when deciding how
much to sell.
A. Market quantity
B. Lowest prices
C. Market prices
D. Input prices

7. (p. 9) Checking to see whether the most profitable positive sales quantity results in a
greater profit than not producing at all is the basis of what rule?
A. Interior Action Rule
B. Quantity Rule
C. Shut-down Rule
D. Profit-maximizing Rule
8. (p. 10) When a firm is a price taker, changes in its sales quantity have ______ effect on the
price it can charge.
A. A positive
B. A negative
C. No
D. Little

9. (p. 10) A price-taking firm's marginal revenue is ______ the price of its output.
A. Equal to
B. Greater than
C. Less than
D. Less than or equal to

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Chapter 09 - Profit Maximization

10. (p. 10) Refer to Figure 9.3. The firm's profit it represented by what area?
A. AHID
B. ABCD
C. DCK0
D. EFG0
11. (p. 10) Refer to Figure 9.3. At what quantity is the firm maximizing profit?
A. 0
B. Q1
C. Q2
D. Q3

12. (p. 11) Jessica owns a company that makes pre-packaged sandwiches for convenience
stores. The market price for a sandwich is $5 and Jessica is a price-taker. Her daily cost for
making sandwiches is C(Q) = 2.5Q + (Q2/40) and her marginal cost is
MC = 2.5 + (Q/20). How many sandwiches should Jessica produce each day?
A. 20
B. 40
C. 45
D. 50
13. (p. 11) Jessica owns a company that makes pre-packaged sandwiches for convenience
stores. The market price for a sandwich is $5 and Jessica is a price-taker. Her daily cost for
making sandwiches is C(Q) = 2.5Q + (Q2/40) and her marginal cost is
MC = 2.5 + (Q/20). What is the average cost of a sandwich at the quantity of sandwiches
Jessica should be selling each day?
A. $2.50
B. $2.90
C. $3.30
D. $3.50
14. (p. 13) The Law of Supply ______ holds for price-taking firms.
A. Always
B. Usually
C. Occasionally
D. Never
15. (p. 13) The Law of Supply states that when the market price ______, the profitmaximizing sales quantity for a price taking-firm never ______.
A. Increases, increases
B. Increases, decreases
C. Decreases, decreases
D. Decreases, increases

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