Question 1

Total revenue:&#10;A) Equals the price per unit.&#10;B) Equals price multiplied by the number of units sold.&#10;C) Equals profit.&#10;D) Equals total costs.

Accepted Answer

Total revenue is calculated by multiplying the price per unit by the number of units sold. This gives the total amount of money brought in from sales.

Question 2

In the short run a firm will only produce provided the price at least:&#10;A) Covers the marginal revenue.&#10;B) Covers the average cost.&#10;C) Covers the average fixed cost.&#10;D) Covers the average variable cost.

Accepted Answer

In the short run, a firm will continue to produce as long as the price covers the average variable cost, even if it's not covering the total costs. This is because, in the short run, fixed costs are sunk and unavoidable, so the firm aims to cover at least its variable costs to minimize losses.

Question 3

In the long run a firm will only produce provided the price at least:&#10;A) Covers the marginal revenue.&#10;B) Covers the average cost.&#10;C) Covers the average fixed cost.&#10;D) Covers the average variable cost.

Accepted Answer

In the long run, a firm will only continue to produce if the price is at least equal to the average cost, which includes both fixed and variable costs. This ensures the firm can cover all its costs and potentially make a profit.

Question 4

Abnormal profit occurs when:&#10;A) Firms do unexpectedly well.&#10;B) There is a sudden increase in demand.&#10;C) Price is greater than average cost.&#10;D) Price is greater than average variable cost.

Accepted Answer

Abnormal profit occurs when the price a firm charges for its product or service is greater than the average total cost of producing it, which includes both fixed and variable costs. This means the firm is earning more than what is necessary to cover all its costs, including a normal profit.

Question 5

If marginal revenue is positive:&#10;A) Total costs are constant if another unit is made.&#10;B) Total revenue increases if another unit is made.&#10;C) Total revenue stays the same if another unit is made.&#10;D) Profits increase if another unit is produced.

Accepted Answer

Marginal revenue is the additional revenue that a company earns by selling one more unit of a product. If marginal revenue is positive, it means that total revenue increases with the production of an additional unit. Choices A, C, and D do not directly relate to the definition of marginal revenue.

Question 6

The shutdown point in the short run occurs when:&#10;A) Price equals average cost.&#10;B) Price equals average variable cost.&#10;C) Price equals average revenue.&#10;D) Price equals average fixed cost.

Accepted Answer

The shutdown point in the short run occurs when the price equals the average variable cost. At this point, the firm covers its variable costs but cannot cover any portion of its fixed costs, making it indifferent between producing and shutting down.

Question 7

The break-even output occurs where:&#10;A) Price equals average cost.&#10;B) Price equals average variable cost.&#10;C) Price equals average revenue.&#10;D) Price equals average fixed cost.

Accepted Answer

The break-even output occurs where total revenue equals total cost, which happens when price equals average cost. This is the point where a firm covers all its costs, including both fixed and variable costs, but makes no profit.

Question 8

If revenue equals costs, abnormal profit is made.

Accepted Answer

Abnormal profit occurs when revenue exceeds both variable and fixed costs, including opportunity costs. If revenue equals costs, the firm is only making normal profit, which is the minimum profit necessary to keep resources in their current use in the long run.

Question 9

If the price of a product is reduced, total revenue will always fall.

Accepted Answer

Total revenue depends on the price elasticity of demand for the product. If demand is elastic, a price reduction can lead to a larger increase in quantity sold, potentially increasing total revenue.

Question 10

If revenue is greater than variable cost, the difference provides a ____________ towards fixed costs.

Accepted Answer

The answer of If revenue is greater than variable cost,...

Question 11

Normal profit occurs when price equals:&#10;A) Average cost&#10;B) Average variable cost&#10;C) Total cost&#10;D) Marginal cost

Accepted Answer

The answer of Normal profit occurs when price equals:&#10;A) Average...

Question 12

If revenue is greater than variable costs then a contribution is made to put towards _________ costs&#10;A) Variable&#10;B) Fixed&#10;C) Marginal&#10;D) Abnormal

Accepted Answer

The answer of If revenue is greater than variable costs...

Question 13

Profit equals:&#10;A) Price plus costs.&#10;B) Revenue plus costs.&#10;C) Revenue minus costs.&#10;D) Price minus costs.

Accepted Answer

The answer of Profit equals:&#10;A) Price plus costs.&#10;B) Revenue plus...

Question 14

A firm profit-maximizes where marginal revenue equals what?&#10;A) Marginal cost&#10;B) Average cost&#10;C) Total cost&#10;D) Total revenue

Accepted Answer

The answer of A firm profit-maximizes where marginal revenue equals...

Question 15

If profit is &#163;20,000 and total costs are &#163;80,000 then revenue is what?&#10;A) &#163;60,000&#10;B) &#163;100,000&#10;C) &#163;40,000&#10;D) &#163;80,000

Accepted Answer

The answer of If profit is &#163;20,000 and total costs...

Deck 11: Revenues, Costs, and Profits