Profit Maximization Practice

1. Which of the following best describes a firm’s profit maximization rule?

A. produce the quantity where price exceeds average variable cost by the greatest amount.
B. produce the quantity where price is equal to the average total cost
C. produce the quantity where marginal cost equals marginal revenue
D. produce the quantity where marginal revenue exceeds marginal cost by the greatest amount.
E. produce the quantity where average variable cost equals average total cost

2. Which of the following mathematical statements must be true if a firm is maximizing profit?
A. MC (Q) = ATC (Q)
B. MR (Q) = MC(Q)
C. MR (Q) = ATC (Q)
D. P < AVC (Q)
E. P= ATC (Q)

3. If a firm is earning a positive economic profit, and it is maximizing that profit, what must be true?
A. P= ATC(Q) and MR (Q) > MC (Q)
B. P>ATC(Q) and MR (Q) = MC (Q)
C. P< ATC(Q) and MR (Q) = MC (Q)
D. P< ATC(Q) and MR (Q) < MC (Q)
E. P> ATC(Q) and MR (Q) > MC (Q)

4. If profit is as high as possible and normal economic profits are being earned, which of the following is true?
A. P= ATC(Q) and MR (Q) = MC (Q)
B. P>ATC(Q) and MR (Q) = MC (Q)
C. P< ATC(Q) and MR (Q) < MC (Q)
D. P> ATC(Q) and MR (Q) > MC (Q)
E. P= ATC(Q) and MR (Q) > MC (Q)

Blammo produces and sells greeting cards. The marginal cost of producing different quantities of greeting cards, as well
as the marginal revenue earned, is given in the table below.

5. How many greeting cards should this firm produce to make the highest possible profit?
A. 5000
B. 2000
C. 3000
D. 7000
E. 9000
Use the graph below to answer questions 6, 7, and 8

The average total cost and marginal cost curves for Blammo Enterprises are shown in this figure:

6. At what price will this firm be willing to sell 11 units?

A. $34 B. $38
C. $58 D. $89
E. $60

7. If this firm is willing to produce exactly 10 units, what must be true?

A. The price is $65 B. The price is $179
C. The firm is making a profit D. The firm is making a loss.
E. The price is $32

8. If the firm’s objective is profit maximization, at what price will this firm be willing to sell 6 units?
A. $34 B. $41
C. $60 D. $4
E. $58

Eliza’s Doggie Delights is a producer of dog treats. The marginal cost of producing each dog treat is given in the table
below. Assume that only whole dog treats can be produced and sold.

9. If Eliza’s Doggie Delights wants to maximize profits, how many dog treats should it produce?
A. 4
B. 3
C. 2
D. 5
E. 0