Practice Questions
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What is economic profit?
Economic profit is what you earn after paying all costs, including what you could have earned elsewhere. Other options are incorrect because This answ...
Which of the following best describes the relationship between profit maximization and cost-benefit analysis in the context of economic profit evaluation?
To maximize profit, a business must look at both costs and benefits. Other options are incorrect because This answer suggests that profit maximization...
In a perfectly competitive market, if a firm is earning positive economic profit, what does this indicate about the market conditions?
When a firm makes extra money, it shows that other companies can easily join the market. Other options are incorrect because Some might think that a f...
A firm calculates its total revenue to be $500,000 while incurring explicit costs of $300,000 and implicit costs of $250,000. What is the economic profit of the firm?
To find economic profit, subtract all costs from total revenue. Other options are incorrect because This answer might come from only considering expli...
A company has a total revenue of $500,000 for the year. The explicit costs associated with running the business amount to $300,000. If the owner estimates that the opportunity cost of their time and investment is $100,000, what is the economic profit of the business?
To find economic profit, subtract all costs from revenue. Other options are incorrect because This answer might come from only subtracting explicit co...
What is the difference between economic profit and accounting profit?
Economic profit looks at all costs, including opportunity costs. Other options are incorrect because Some might think economic profit is always higher...
What is economic profit?
Economic profit is what you earn after subtracting all costs, including what you could have earned elsewhere. Other options are incorrect because This...
What is the formula to calculate economic profit when total revenue is known?
To find economic profit, you subtract total costs from total revenue. Other options are incorrect because Adding total costs to total revenue doesn't ...
A firm in monopolistic competition sets its price above average total cost but still incurs losses. What does this imply about its market position?
The firm is not pricing its product correctly. Other options are incorrect because This suggests the firm is doing well, but losses show it is not; Th...
In a monopolistically competitive market, what does it indicate if a firm's price is below its average total cost?
When a firm's price is lower than its average total cost, it means the firm is losing money. Other options are incorrect because Some might think that...
Economic profit evaluation is to a firm’s pricing strategy as assessing a student’s grades is to their:
Just like a firm looks at profits to set prices, students look at grades to improve study habits. Other options are incorrect because Some might think...
Arrange the following steps in the correct order to evaluate a firm's economic profit in monopolistic competition: A) Determine the market price from the demand curve, B) Compare the market price to the average total cost, C) Assess the level of economic profit as positive, negative, or zero, D) Identify the quantity produced at the intersection of marginal cost and marginal revenue.
First, you find the market price from the demand curve. Other options are incorrect because This option starts with finding the price but skips the im...
If a firm in monopolistic competition finds that its price is consistently lower than its average total cost, which of the following is the most likely cause of this situation?
When a firm sells its product for less than it costs to make, it usually means not enough people want to buy it. Other options are incorrect because I...
A firm in monopolistic competition sets its price below its average total cost at a certain quantity. How would you classify the firm's economic profit situation?
When a firm sells at a price lower than its average total cost, it loses money. Other options are incorrect because Some might think that selling at a...
In monopolistic competition, if a firm's price is below its average total cost, it is experiencing __________ economic profit, indicating potential inefficiency and losses.
When a firm's price is lower than its average total cost, it means the firm is losing money. Other options are incorrect because Some might think that...
Which of the following statements accurately describe the relationship between price, average total cost, and economic profit in a monopolistically competitive market? Select all that apply.
Other options are incorrect because This statement suggests that profit happens only when price is higher than costs; This option implies that breakin...
A local café operates in a monopolistically competitive market. After analyzing its costs and pricing strategy, the owner finds that the price of their signature coffee is $3.50, while the average total cost per cup is $4.00. What does this indicate about the café's economic profit, and what implications might it have for their long-term strategy?
The café's price is lower than its average total cost. Other options are incorrect because Some might think a higher price means profit; This option s...
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