Practice Questions
Click any question to see detailed solutions
In a perfectly competitive market, which of the following statements is true regarding economic profits in the long run?
In the long run, firms in a perfectly competitive market earn zero economic profits. Other options are incorrect because Some might think firms can ke...
In a monopolistic market, how does the concept of marginal revenue relate to the barriers to entry that protect the firm from new competitors?
In a monopolistic market, marginal revenue is less than the price. Other options are incorrect because This answer suggests that marginal revenue is t...
In a monopolistic market structure, which of the following is most likely to create barriers to entry for potential competitors?
High fixed costs make it hard for new companies to start. Other options are incorrect because Low consumer demand means fewer people want the product;...
In a perfectly competitive market, if a new firm enters the market facing high barriers to entry, how would this impact the marginal revenue and economic profits of the existing firms?
When a new firm enters, it increases competition. Other options are incorrect because Some might think more firms mean higher sales and profits; It's ...
In a competitive market, how does the relationship between marginal cost and accounting profit influence market dynamics when firms are making economic profits?
When firms earn extra money, more companies want to join the market. Other options are incorrect because This answer suggests firms leave the market w...
What is the primary characteristic of economic profit in a competitive market?
Economic profit takes into account all costs, including what you give up to run your business. Other options are incorrect because Some think economic...
Which of the following best describes accounting profit in the context of economic profits and market dynamics?
Accounting profit is found by taking total revenue and subtracting only the explicit costs. Other options are incorrect because This option confuses e...
In a perfectly competitive market, which of the following statements is true regarding economic profits in the long run?
In the long run, firms in a perfectly competitive market earn zero economic profits. Other options are incorrect because Some might think firms can ke...
In a perfectly competitive market, if a firm is experiencing economic profits, which of the following is most likely to occur in the long run?
When a firm makes extra money, it attracts new businesses. Other options are incorrect because Some might think a firm would cut back to keep prices h...
A new coffee shop opens in a competitive neighborhood where several similar establishments already exist. Initially, the owner believes that by offering lower prices, they can attract customers and achieve economic profits. However, after a few months, they notice that their total revenue is not covering their total costs, including the opportunity cost of their time and investment. What principle from economic theory explains why the coffee shop may not be realizing economic profits despite initially attracting customers?
In a competitive market, many businesses try to attract customers by lowering prices. Other options are incorrect because Some might think low prices ...
A tech startup has recently entered the market and is currently incurring losses due to high initial investment costs. Which of the following statements best classifies the firm's situation in relation to economic profits and market dynamics?
The firm can keep running even if it loses money, as long as it pays its basic costs. Other options are incorrect because Some might think that losing...
If a firm is experiencing economic profits, what is the most likely underlying cause of this situation?
When a firm has economic profits, it means it earns more than it spends. Other options are incorrect because Some might think too much competition hel...
How do economic profits influence market entry by new firms?
When a business makes a lot of money, it shows others that they can also make money. Other options are incorrect because Some might think that high pr...
In a perfectly competitive market, if a firm is earning economic profits, it indicates that the firm's total revenue exceeds its total costs, which include both explicit and __________ costs. This situation often attracts new entrants into the market, influencing supply dynamics.
Implicit costs are the opportunity costs of using resources. Other options are incorrect because Variable costs change with production levels, like ma...
Economic profit is to firm behavior as market equilibrium is to ?
Market equilibrium happens when supply and demand balance. Other options are incorrect because Some might think consumer choices directly set market p...
Which of the following statements correctly describe the implications of economic profits in a competitive market? Select all that apply.
In a competitive market, economic profits do not last long. Other options are incorrect because Some might think profits always mean more companies wi...
Arrange the following steps in the correct order of how a firm adjusts its output in response to economic profits in a competitive market: A) Entry of new firms increases market supply B) Existing firms earn economic profits C) Price falls due to increased supply D) Firms adjust output to maximize profits
When existing firms make profits, it attracts new firms. Other options are incorrect because This option suggests that firms adjust output before new ...
Master Economic Profits and Market Dynamics
Ready to take your understanding to the next level? Access personalized practice sessions, progress tracking, and advanced learning tools.