Chapter 21 - Profit Maximization

1		Statement I. We use the same analysis to pursue profit maximization and loss minimization. Statement II. The "bottom line" for the business firm is profit maximization.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
2		When price is constant, the demand curve
			A)	lies above the marginal revenue curve.
			B)	lies below the marginal revenue curve.
			C)	is identical to the marginal revenue curve.
3		When marginal revenue is greater than marginal cost, the firm should
			A)	expand output.
			B)	contract output.
			C)	keep output constant.
4		When the demand curve lies below the ATC curve the firm is
			A)	making a profit.
			B)	taking a loss.
			C)	breaking even.
5		Statement I:. The firm's short run supply curve and long run supply curve are identical. Statement II: A firm will go out of business in the long run if it is losing money.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
6		The lowest price that a firm will accept in the short run is at
			A)	the minimum point of the ATC curve.
			B)	the shut-down point.
			C)	the break-even point.
7		A firm is operating most efficiently at the output at
			A)	the minimum point of the ATC.
			B)	the shut-down point.
			C)	the minimum point of the AVC curve.
8		Statement I. It is possible for a firm to operate with peak efficiency and at its most profitable output simultaneously. Statement II. The firm's short-run supply curve is longer than its long-run supply curve.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
9		Statement I. A firm cannot stay in business if it loses money for more than two consecutive years. Statement II. A firm always tries to maximize its profit per unit of output.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
10		If a firm is losing money in the short run, its price is
			A)	above the break-even point.
			B)	below the shut-down point.
			C)	between the shut-down point and the break-even point.
11		Marginal analysis is useful to a firm that seeks to
			A)	maximize its profits, but not minimize its losses.
			B)	minimize its losses, but not maximize its profits.
			C)	both maximize its profits and minimize its losses.
			D)	neither maximize its profits nor minimize its losses.
12		If the demand curve lies below the AVC curve the firm will
			A)	operate in the short run and go out of business in the long run.
			B)	operate in the short run and stay in business in the long run.
			C)	shut down in the short run and go out of business in the long run.
			D)	shut down in the short run and stay in business in the long run.
13		A plant may be any of the following except
			A)	a store.
			B)	an office.
			C)	a factory.
			D)	a computer system.
14		To determine if a firm is operating at peak efficiency, one would need to look at its
			A)	demand curve.
			B)	AVC curve.
			C)	ATC curve.
			D)	MC curve.
15		Statement I: The break-even point is on the firm's short-run supply curve and its long-run supply curve. Statement II: A firm will always produce at an output corresponding to the minimum point of its ATC curve.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.