Question

a. The market price is determined by:

multiple choice 1

• marginal revenue and marginal cost.

• market demand and market supply.

• marginal revenue and average total cost

b. To determine the firm's profit-maximizing output, the firm will set its marginal revenue equal to:

multiple choice 2

• marginal cost.

• average variable cost.

• average total cost.

• market price.

c. A firm is making an economic profit if, at the profit-maximizing output, the market price is:

multiple choice 3

• less than average total cost.

• less than average variable cost.

• greater than average total cost.

• greater than average variable cost.

d. If firms are earning economic profits, the market price will:

multiple choice 4

• fall as some existing firms exit the market.

• increase as some existing firms exit the market.

• fall as new firms enter the market.

• increase as new firms enter the market.

Answer 1

a)answer is option 2...... because, market price is determined by the law of supply and demand

b) answer is option 1.... because, profite is maximised when marginal revenue equals marginal cost.

c) answer is option 3 ........ because, firms earn economic profits only if price is greater than average total cost of production otherwise firms may incurr losses.

d) answer is option 3..... because, if firms earning more economic profits,more firms will enter the market pushing the supply to raise which inturn leads price fall.