Question

1.16 Accounting profit is equal to… a) Total revenue less total explicit costs b) Normal profit plus economic profit c) All of the above d) None of the above

1.17 When average product is decreasing… a) Marginal product is decreasing b) Marginal product is increasing c) Marginal product equals zero d) Average product is increasing

1.18 Figure 1 diagram shows a situation of… a) Economic profit under perfect competition b) Normal profit under perfect competition c) Economic profit under monopolistic competition d) Normal profit under monopolistic competition

1.19 Which of the following firms do not earn normal profits in the long run? a) Monopolistic competition b) Monopoly c) Perfectly competitive firms d) None of the above

1.20 For a firm in an oligopoly market structure with a kinked demand curve, equilibrium is determined by… a) Marginal revenue equals marginal cost b) Price equals marginal cost c) All of the above d) None of the above

Answer 1

1.16 Answer is A.

Accounting profit = total revenue - Explicit cost

economic profit = Total revenue - Explicit cost - implicit cost

1.17 Answer is A.

When average product starts decreasing marginal product already started to decrease. so when Ap is decreasing MP must be decreasing.

1.18 Answer is B.

Here is perfect competition because MR is horizontal to X axis and profits are normal because price is equal to the average total cost. So here total cost is equal to total revenue.

1.19 Answer is B. Monopoly.

Monopoly firm in long run usually earns economic profits because there is only one firm in the industry.

1.20 Answer is A.
For any firm in any industry equilibrium is determined by where marginal cost is equal to marginal revenue.

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