Economics - Economics Section 1

21. In order to maximize profits a firm should operate at a quantity such that marginal revenue is:

  • Option : C
  • Explanation : In order to maximize profits the quanity produced must be such that marginal revenue is equal to marginal cost.
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22. A monopolist faces the following demand and cost schedules:

Output (units) Price ($/unit)Total Costs ($)
0  5000800
20 480020800
40  460064800
60 4400122800
80  4200244800
100  4000350800

  • Option : B
  • Explanation : The optimal price level is 60 units because it produces the highest profit.
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25. In a perfect competition, if companies are earning economic profit then over the long run the supply curve will most likely:

  • Option : C
  • Explanation : The economic profit will attract new entrants to the market and encourage existing companies to expand capacity.
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