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Chapter 11: Quiz
Profit Maximization
1.
In order to maximize profits, a firm should produce at the output level for which
a.
average cost is minimized.
b.
marginal revenue equals marginal cost.
c.
marginal cost is minimized.
d.
price minus average cost is as large as possible.
e.
marginal profit is maximized.
2.
If demand facing the firm is price-elastic, marginal revenue will be
a. positive.
b. zero.
c. negative.
d. constant.
3.
If a firm is a price taker, its marginal revenue is
a.
constant.
b.
increasing in quantity produced and sold.
c.
decreasing in quantity produced and sold.
d.
either b or c, depending on the price elasticity of demand.
4.
If a firm’s marginal revenue is above its marginal cost, an increase in production will
usually
a.
increase profits.
b.
leave profits unchanged.
c.
decrease profits.
d.
increase marginal revenue.
5.
If the demand faced by a firm is inelastic, selling one less unit of output will
a.
increase revenues.
b.
decrease revenues.
c.
increase profits.
d.
both a and c.
6.
If the demand faced by a firm is elastic, selling one less unit of output will
a.
increase profit.
b.
decrease profit.
c.
keep profit constant.
d.
can’t tell.
7.
It is usually assumed that a perfectly competitive firm’s short run supply curve is given by
its marginal cost curve. Which of the following is/are not necessary conditions for a
competitive firm’s marginal cost curve to also be its supply curve?
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I.
II.
III.
IV.
a.
b.
c.
d.
e.
8.
9.
That the firm seeks to maximize profits.
That the marginal cost curve be positively sloped.
That price exceeds average variable cost.
That price exceeds average total cost.
I
II
III
IV
II and IV
A firm will shut down in the short run if
a.
P < MC.
b.
P < AC.
c.
P < AVC.
d.
none of the above.
If a price-taking firm’s production function is given by q 
given by
1
l 3 , its supply function is
1
a.
 p 3
  .
 3w 
b.
 p 3

 .
 2w 
c.
 p 2
  .
 3w 
1
1
d.
e.
10.
1
 2 p 3

 .
 3w 
none of the above
If a price-taking firm’s production function is given by q 
by
a.
1
 p 3
  .
 3w 
1
b.
142
 p 3

 .
 6w 
1
l 3 , its profit function is given
Chapter 9/Profit Maximization 
143
1
c.
d.
e.
 p 2
  .
 3w 
1
 p 6
  .
 w
none of the above.
11.
If both input and output prices rise by 10% then profits will
a.
rise by 10%.
b.
remain unchanged.
c.
fall by 10%.
d.
rise by 12.1%.
12.
A profit-maximizing firm’s demand function for labor is given by
C
a.
.
w

b.
.
w
k
c.
.
w
d.
none of the above.
13.
A firm will hire additional units of any input up to the point where
a.
the marginal productivity of the input is maximized.
b.
the marginal cost of employing the input is minimized.
c.
the expense of employing the last unit is equal to the revenue brought in by the
last unit.
d.
the revenue brought in by the input is maximized.
14.
The substitution effect of a change in wage rate on a firm’s demand for labor input will be
more significant
a.
the greater the change in output.
b.
the more sharply curved are the firm’s isoquants.
c.
the flatter are the firm’s isoquants.
d.
the more inelastic is demand for their final good.
15.
An input’s marginal revenue product is given by
a.
the input’s marginal expense times marginal revenue.
b.
the input’s marginal expense times the input’s marginal physical productivity.
c.
marginal revenue times the number of units employed.
d.
the input’s marginal physical productivity times marginal revenue of the firm’s
output.
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