1.

Question
A firm will shut down in the short run if its revenues fail to cover its:

Fixed costs

Variable costs

Marginal costs

Sunk costs

Opportunity costs

Economic costs

2. Question
In this module, the firm had no control over the exogenously given price, P 0, the market paid for its output.
This means the profit maximizing output for the firm is independent of this price the firm has no control
over.

True

False

3. Question
The area under the MC curve is not a good measure of total cost. Which of the following reasons offers the
best explanation of why that is true?

Total cost is given by the area above the MC curve and below the price at which MR = MC.

Total cost is given by the area under the ATC curve and not the MC curve.

The area under the MC curve only gives the variable cost.

Total cost is given by the sum of MC and fixed cost curves.

4. Question
A graph showing marginal revenue and marginal cost will allow you to discover the firm’s profit maximizing
output as well as a graphical representation of this level of profit.

True

False

5. Question
Suppose firm X is facing an exogenously given price, P 0, and has found its profit maximizing output point
Q0. Further, suppose that at this output, profits are zero. An increase in fixed cost with no other changes to
cost curves will result in which of the following?

The firm will exit the industry in the short run.

The firm will reduce its profit maximizing output level for the firm in the short run to a level Q 1, where 0
< Q1 < Q0.

The firm will continue to produce Q0 in the short run.

None of the other options are correct.

The firm will shutdown and produce Q = 0 in the short run.

6. Question
Which of the following is optimal for a firm in the long run if that firm is facing negative profits?

Decrease production

None of the other options are correct.

Exit the market

Downscale production

Shutdown
 7. Question
If a firm is facing an exogenously given price, P 0, and has found its profit maximizing output point, an
increase in fixed cost will not change this profit maximizing output level for the firm in the short run.

True

False

8. Question
Which of the following describe(s) a firm’s profits? Select all that apply.

(Price times quantity) – (Quantity times ATC), where all variables are at the profit maximizing quantity

Quantity times the difference between price and the average total cost

Total revenue minus total cost

9. Question
If a firm is facing an exogenously given price, P 0, and has found its profit maximizing output point, an
increase in fixed cost will cause the firm to increase its output to help cover these higher fixed costs.

True

False

10. Question
If a firm is facing an exogenously given price, P 0, and industry conditions change such that the new market
price is P1 > P0, which of the following is true?

The total revenue curve will reach its maximum at a new, higher output than under the old price, P0,
and total revenue would decline for further increases in output.

The total revenue curve will become steeper, with an increase in slope on the graph, with dollars on
the vertical axis and firm quantity on the horizontal axis.
 The total revenue curve will shift up vertically on the graph, with dollars on the vertical axis and firm
quantity on the horizontal axis.

None of the other options are correct.

There will be no change to the total revenue curve of this individual firm.

11. Question
A firm facing an exogenously given market price, P 0, will find its short run profit maximizing output is always
where:

Average total cost is just tangent to marginal revenue

Marginal cost is minimized

Marginal cost is equal to marginal revenue at a level greater than average variable cost

Marginal cost is equal to marginal revenue at a level greater than average variable cost AND average
total cost is just tangent to marginal revenue

Marginal revenue exceeds average total cost

12. Question
If a firm is maximizing profit at Q0, a change in fixed cost, either up or down, will have no impact on short
run profit maximizing output.

True

False