Practice Questions
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How does price elasticity of demand affect marginal costs and total revenue for a firm?
When demand is less sensitive to price changes, firms can raise prices without losing many customers. Other options are incorrect because This option ...
In a perfectly competitive market, how does a firm determine its break-even point considering marginal costs and total revenue?
A firm breaks even when its total revenue matches its total costs. Other options are incorrect because Some might think that the lowest marginal cost ...
In the context of profit maximization, how do marginal costs relate to total revenue when deciding the optimal level of production?
To make the most profit, the cost of making one more item (marginal cost) should be less than what you earn from selling it (total revenue). Other opt...
In the context of a perfectly competitive market, if a firm experiences an increase in fixed costs while the price elasticity of demand remains constant, what will be the likely impact on the firm's revenue curves?
When fixed costs increase, it doesn't change the price or quantity sold. Other options are incorrect because Some might think higher fixed costs mean ...
In the context of a firm's production, if the marginal cost of producing an additional unit is greater than the marginal revenue received from selling that unit, what is the most likely behavior of the firm?
When it costs more to make one more item than what you earn from selling it, the firm loses money. Other options are incorrect because Some might thin...
What happens to total revenue if a firm increases production when marginal cost is less than the price of the product?
When a firm produces more and the cost to make one more item is less than what they sell it for, they earn more money. Other options are incorrect bec...
If a company generates total revenue of $500,000 and incurs marginal costs of $300,000, what is the company's profit?
Profit is what you earn after paying costs. Other options are incorrect because This answer might come from thinking costs are the same as profit; Thi...
If a company has fixed costs that do not change with the level of production, how do these costs affect the determination of marginal costs and total revenue?
Fixed costs are the same no matter how much a company makes. Other options are incorrect because Some might think fixed costs add to the cost of each ...
A company is evaluating its pricing strategy for a new product. If they decide to lower the price and observe a significant increase in total revenue, which of the following categories best describes the relationship between marginal costs and total revenue in this scenario?
When the company lowers the price, more people buy the product. Other options are incorrect because Some might think that costs don't change when pric...
Arrange the following steps in the correct sequence to understand how a firm can maximize profit through marginal costs and total revenue: A) Analyze how total revenue changes with price adjustments, B) Calculate the marginal cost of producing an additional unit, C) Determine the optimal output level where marginal cost equals marginal revenue, D) Assess total costs to ensure they are less than total revenue.
First, you need to see how total revenue changes when prices change. Other options are incorrect because This option suggests starting with costs befo...
A small bakery produces custom cakes. Recently, they noticed that for every additional cake produced, their marginal cost increases due to overtime labor and higher ingredient prices. They decide to raise their prices in order to maximize total revenue. If they find that their total revenue actually decreases after the price increase, which of the following explanations is most likely correct?
When the bakery raised prices, fewer customers wanted to buy cakes. Other options are incorrect because This suggests the bakery thought it cost less ...
When a firm experiences diminishing returns, how does this affect its marginal costs and total revenue?
When a firm has diminishing returns, it means each extra unit costs more to produce. Other options are incorrect because This answer suggests that hig...
In a competitive market, when a firm increases production, it must consider the relationship between marginal costs and _______ to maximize profit. A firm will only produce additional units as long as the marginal cost is less than the _______.
A firm wants to make money. Other options are incorrect because Some might think average variable cost is important; Total cost includes all expenses,...
Marginal cost is to total cost as price elasticity is to what?
Price elasticity measures how much demand changes when price changes. Other options are incorrect because Fixed costs do not change with production le...
Which of the following statements are true regarding marginal costs and total revenue in a competitive market? Select all that apply.
Other options are incorrect because Some think that costs always go up as you make more; People might believe that price changes don’t matter if deman...
If a firm experiences a decrease in marginal costs, what is the likely effect on its pricing strategy in a competitive market?
When a firm has lower marginal costs, it can produce goods more cheaply. Other options are incorrect because This option suggests raising prices to co...
If a firm increases production and finds that its marginal costs exceed its marginal revenue, what should the firm consider doing?
When a company makes more products, it costs more to make each extra item. Other options are incorrect because Some might think making more products w...
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