Practice Questions
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What is the primary goal of a firm in the context of profit maximization?
The main aim of a business is to make as much money as possible. Other options are incorrect because Some might think that cutting costs is the main g...
In the context of profit maximization, how do firm behaviors differ between short-run and long-run decisions?
In the short run, firms have fixed costs, like rent, that they can't change. Other options are incorrect because This answer confuses fixed and variab...
Which of the following scenarios best illustrates the difference between short-run and long-run profit maximization for a firm, considering cost-benefit analysis?
Investing in new technology shows long-term thinking. Other options are incorrect because This option shows a quick response to demand; Stopping a pro...
In a perfectly competitive market, how does a firm decide on the quantity of output to produce in the short run, and how might this decision change in the long run?
A firm maximizes profit by producing where its cost to make one more item (marginal cost) equals the money it earns from selling that item (marginal r...
A firm is maximizing its profit in a competitive market. If its marginal cost is equal to the market price, which of the following statements is true regarding the firm's economic profit?
When a firm's marginal cost equals the market price, it means the firm is covering all its costs. Other options are incorrect because Some might think...
What is the primary goal of a firm in a competitive market regarding profit maximization?
The main goal is to produce where the cost of making one more item equals the money earned from selling it. Other options are incorrect because Some m...
What is the relationship between marginal cost and profit maximization for firms?
Firms make the most money when the cost of making one more item (marginal cost) is the same as the money they earn from selling that item (marginal re...
What is the relationship between marginal revenue and profit maximization for a firm?
A firm maximizes profit when it produces until its marginal revenue equals its marginal cost. Other options are incorrect because This option suggests...
Arrange the following steps in the correct order to achieve profit maximization for a firm:
Finding the point where the extra money made from selling one more item equals the extra cost of making that item is key. Other options are incorrect ...
A firm is currently producing where marginal revenue exceeds marginal cost. What should the firm do to maximize its profit?
When a firm makes more money from selling one more item than it costs to make that item, it should produce more. Other options are incorrect because S...
Profit maximization for firms is to marginal revenue as efficient resource allocation is to what?
Efficient resource allocation happens when the cost of producing one more item equals the revenue it brings in. Other options are incorrect because So...
If a firm increases its output to the point where marginal revenue is greater than marginal cost, what is the most likely effect on its profit maximization strategy?
When a firm sees that it makes more money from selling one more unit than it costs to make it, it should produce more. Other options are incorrect bec...
A local bakery is trying to determine how many loaves of bread to produce daily to maximize profits. They find that their marginal cost of producing each additional loaf is $2, while the price they can sell each loaf for is currently $3. What should the bakery do to maximize its profits?
The bakery should keep making loaves until the cost of making one more loaf is the same as the money they earn from selling it. Other options are inco...
In the context of profit maximization, a firm should continue to produce additional units of output as long as the __________ is greater than the marginal cost.
A firm should keep making more products if the money it earns from selling one more unit is higher than what it costs to make that unit. Other options...
A firm is considering increasing its output. Which condition must be met for this to lead to profit maximization?
For a firm to maximize profit, it needs to produce until the money it makes from selling one more unit (marginal revenue) is equal to the cost of maki...
Which of the following statements correctly describe the conditions for profit maximization for firms? Select all that apply.
None of the statements accurately describe how firms maximize profit. Other options are incorrect because This statement suggests that profit is maxim...
A firm is producing at a level where marginal cost is greater than marginal revenue. What action should the firm take to maximize profit?
When the cost to produce one more item is higher than the money made from selling it, the firm loses money. Other options are incorrect because Some m...
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