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Chapter 08 Profit Maximization
MULTIPLE CHOICE
1. In economic theory, we assume that the goal of the firm is to:

a. maximize sales revenue.
b. maximize market share.
c. maximize the benefits it provides to its customers.
d. maximize the profit.
e. maximize the sales volume.
ANS: D DIF: Easy REF: 1 OBJ: ch. 08, 1
NAT: Analytic | The Study of Economics, and Definitions in Economics
TOP: Profit Maximization MSC: Knowledge
2. Profit is the difference between:

a. total output and total cost.
b. total revenue and total cost.
c. total revenue and total sunk cost.
d. total output and total sunk cost.
e. total revenue and opportunity cost.
ANS: B DIF: Easy REF: 1.a OBJ: ch. 08, 1
TOP: Profit Maximization MSC: Knowledge
3. A firm wishing to maximize profits will produce at the level of output where:
a. marginal cost is equal to zero.
b. its total-cost curve intersects its total-revenue curve.
c. costs are at a minimum.
d. total revenue exceeds total cost by the largest amount.
e. marginal revenue exceeds marginal cost by the greatest amount.
ANS: D DIF: Easy REF: 1.a OBJ: ch. 08, 1
NAT: Analytic | Equilibrium TOP: Profit Maximization
MSC: Knowledge
4. Suppose that at a given level of output, a perfectly competitive firm charges a price of $12 and has
average total costs of $10. If its economic profit is $20,000, then it must be producing:
a. 40,000 units of output.
b. 20,000 units of output.
c. 30,000 units of output.
d. 10,000 units of output.
e. 50,000 units of output.
ANS: D DIF: Challenging REF: 1.a OBJ: ch. 08, 1
NAT: Reflective Thinking | Equilibrium TOP: Profit Maximization
MSC: Application
5. Assume that a firm’s marginal revenue curve intersects the rising portion of the marginal cost curve at
100 units of output. At this output level, a profit-maximizing firm’s total cost is $1,000. If the price of
the product is $3 per unit and the firm produces at the profit-maximizing level, the firm will earn an
economic profit equal to:
a. -$1,000.
b. -$700.
c. -$400.
d. -$600.
e. $200.
ANS: B DIF: Moderate REF: 1.a OBJ: ch. 08, 1
MSC: Application
NARRBEGIN: Table 8.1

The table given below shows the total revenue and total cost of producing a commodity.
Table 8.1
Total Output Total Revenue Total Cost
0 $0 $1,000
1 $1,700 $2,000
2 $3,300 $2,800
3 $4,800 $3,500
4 $6,200 $4,000
5 $7,500 $4,500
6 $8,700 $5,200
7 $9,800 $6,000
8 $10,800 $7,000
9 $11,700 $9,000
NARREND
6. In Table 8.1, the marginal revenue from the sixth unit of output is:
a. $1,700.
b. $1,600.
c. $1,500.
d. $1,300.
e. $1,200.
ANS: E DIF: Easy OBJ: ch. 08, 1
NAT: Reflective Thinking | Marginal Costs and Benefits TOP: Profit Maximization
MSC: Application
7. In Table 8.1, the marginal cost of producing the sixth unit of output is equal to _____.
a. $700.
b. $600.
c. $500.
d. $300.
e. $200.
ANS: A DIF: Easy REF: Ch 8, 1.a OBJ: ch. 08, 1
MSC: Application
8. In Table 8.1, marginal revenue exceeds marginal cost:

a. until the fifth unit of output.
b. until the sixth unit of output.
c. up to the seventh unit of output.
d. up to the eighth unit of output.
e. at all units of output.
ANS: C DIF: Moderate REF: Ch 8, 1.a OBJ: ch. 08, 1
MSC: Application
9. In Table 8.1, if the firm produces five units of output, it makes a profit of _____.
a. $3,000
b. $0.
c. $3,000.
d. $1,200.
e. $1,000.
NAT: Reflective Thinking | Understanding and Applying Economic Models
TOP: Profit Maximization MSC: Application
10. In Table 8.1, in order to maximize profits, the firm should produce ____ units of output.
a. five
b. six
c. seven
d. eight
e. nine
ANS: D DIF: Moderate REF: Ch 8, 1.a OBJ: ch. 08, 1
NARRBEGIN: Table 8.2

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for
each client.
Table 8.2
Holmes’s Detective Agency
Number of Marginal Marginal Cost
Clients Revenue
1 100 $200
2 90 $100
3 80 $80
4 70 $40
5 60 $45
6 50 $50
7 40 $60
8 30 $70
9 20 $90
10 10 $120
NARREND
11. In Table 8.2, assume that Holmes’s total fixed cost is zero. Compute the profit earned by the agency
with two clients.
a. -$110
b. $110
c. $120
d. -$10
e. $10
ANS: A DIF: Challenging OBJ: ch. 08, 1
MSC: Application
12. According to Table 8.2, what will be the total number of clients that will maximize profits for the
Holmes Detective Agency?
a. 2
b. 3
c. 5
d. 6
e. 8
ANS: D DIF: Moderate OBJ: ch. 08, 1
MSC: Application
13. Refer to Table 8.1. If we assume that Holmes is currently serving 8 clients, then Holmes Agency:
a. is maximizing profit.
b. should find more clients to increase profits.
c. is maximizing total revenue.
d. could increase profits by serving less clients.
e. is minimizing cost.
ANS: D DIF: Moderate OBJ: ch. 08, 1
MSC: Application
14. Goodspeed Automobiles manufactures 100 disc brake cylinders. At this output level, its marginal
revenue is equal to its marginal cost. If the revenue per unit of output is $500 and the per unit cost is
$350, its profit is:
a. $20,000.
b. $15,000.
c. $45,000.
d. $25,000.
e. $10,000.
ANS: B DIF: Challenging REF: 1.a OBJ: ch. 08, 1
MSC: Application
15. Assume that the marginal revenue curve intersects the rising portion of the marginal cost curve at 100
units of output. At this output level, a profit-maximizing firm’s total fixed cost is $600 and its total
variable cost is $400. If the price of the product is $8 per unit, the firm should produce:
a. zero units of output.
b. less than 100 units of output.
c. 100 units of output.
d. more than 100 units of output.
e. 200 units of the output.
ANS: C DIF: Moderate OBJ: ch. 08, 1
MSC: Application
16. Assume that a firm’s marginal revenue curve intersects the rising portion of the marginal cost curve at
100 units of output. At this output level, a profit-maximizing firm’s total cost is $1,000. If the price of
the product is $10 per unit, the firm will earn an economic profit of:
a. zero.
b. $400.
c. more than zero but less than $100.
d. $100.
e. more than $100.
ANS: A DIF: Moderate OBJ: ch. 08, 1
MSC: Application
17. Which of the following is true of marginal revenue?

a. Marginal revenue equals total revenue divided by quantity.
b. Marginal revenue is the slope of the supply curve of a firm.
c. Marginal revenue is the slope of the total cost curve when profit is maximized.
d. Marginal revenue equals the change in total revenue divided by the change in the quantity.
e. Marginal revenue equals the income earned by selling the stocks on the margin.
ANS: D DIF: Easy REF: 1.a.1 OBJ: ch. 08, 1
NAT: Analytic | Marginal Costs and Benefits TOP: Profit Maximization
MSC: Knowledge
18. The MR schedule can be obtained from the TR schedule by:

a. adding two successive values in the TR schedule.
b. subtracting the succeeding TR value from the preceding TR value.
c. subtracting the preceding TR value from the succeeding TR value.
d. multiplying two successive TR values.
e. dividing the succeeding TR value by the preceding TR value.
ANS: C DIF: Moderate REF: 1.a.1 OBJ: ch. 08, 1
MSC: Knowledge
19. Marginal revenue of nth unit of output is:

a. total revenue of (n+1)th unit minus total revenue of nth unit.
b. total revenue of nth unit minus total revenue of (n-1)th unit.
c. total revenue of (n+1)th unit minus total revenue of (n-1)th unit.
d. the sum of total revenue of (n+1)th unit and nth unit.
e. the sum of total revenue of (n+1)th unit and (n-1)th unit.
ANS: B DIF: Moderate REF: 1.a.1 OBJ: ch. 08, 1
MSC: Knowledge
20. Which of the following is true of marginal cost?

a. Marginal cost is the cost per unit of output produced.
b. Marginal cost is the change in total cost divided by the change in total output.
c. Marginal cost curve is negatively sloped at the profit-maximizing level of output.
d. Marginal cost is equal to total cost divided by the quantity of output.
e. Marginal cost initially increases with an increase in output but subsequently declines.
ANS: B DIF: Easy REF: 1.a.1 OBJ: ch. 08, 1
MSC: Knowledge
21. A producer can raise profit by expanding output if:

a. marginal revenue is equal to marginal cost.
b. marginal revenue is less than marginal cost.
c. marginal revenue is negative.
d. marginal cost is negative.
e. marginal revenue is greater than marginal cost.
ANS: E DIF: Easy REF: 1.a.1 OBJ: ch. 08, 1
MSC: Knowledge
22. The addition to a business firm’s total costs that comes from producing one more unit of output is:
a. total variable cost.
b. marginal cost.
c. sunk cost.
d. opportunity cost.
e. total fixed cost
MSC: Knowledge
23. Profit of a firm is maximized when:

a. marginal revenue is maximum.
b. marginal revenue is greater than marginal cost.
c. marginal revenue is equal to marginal cost.
d. marginal cost is minimum.
e. marginal revenue is less than marginal cost.
ANS: C DIF: Easy REF: 1.a.1 OBJ: ch. 08, 1
MSC: Knowledge
24. A profit-maximizing firm will produce the level of output at which:

a. average revenue equals average cost.
b. average revenue equals average variable cost.
c. marginal revenue equals marginal cost.
d. marginal cost equals average revenue.
e. marginal revenue exceeds marginal cost by the maximum amount.
ANS: C DIF: Easy REF: Ch 8, 1.a OBJ: ch. 08, 1
MSC: Knowledge
25. Assume that a firm is producing an output level such that marginal revenue equals marginal cost. One
can correctly conclude that the firm is producing a level of output which is:
a. equal to the profit maximizing level of output.
b. equal to revenue maximizing level of output.
c. less than the profit maximizing level of output.
d. zero.
e. greater than the profit maximizing level of output.
ANS: A DIF: Easy REF: 1.a.1 OBJ: ch. 08, 1
MSC: Knowledge
26. If a firm’s marginal revenue is greater than its marginal cost, then:
a. each added unit of output will reduce profits.
b. the firm is maximizing profit.
c. more output will add more to revenue than to cost.
d. more output will add more to cost than to revenue.
e. less output will add more to revenue than to cost.
MSC: Knowledge
27. Assume that a firm’s marginal revenue curve intersects the rising portion of its marginal cost curve at
500 units of output. At this output level, a profit-maximizing firm’s total cost of production is $1,000.
If the price of the product is $5 per unit, the total revenue earned by the firm will be:
a. $1,500.
b. $250.
c. $500.
d. $2,500.
e. $1,000.
ANS: D DIF: Moderate REF: 1.a.1 OBJ: ch. 08, 1
MSC: Application
28. Suppose that Cheapo Industries, a perfectly competitive firm, currently produces 500 units of imitation
ham spread for a total cost of $1,500. The marginal cost of the 500th unit is $20, and the marginal
revenue of the 500th unit is $15. To maximize profits, Cheapo Industries should:
a. continue to produce 500 units.
b. produce more than 500 units but less than 1500 units.
c. produce less than 500 units.
d. produce more than 1500 units.
e. stop producing at 500 units.
MSC: Application
29. Suppose at a certain quantity of output, a firm’s average-total-cost curve lies above its demand curve.
At this quantity of output, the firm:
a. is earning negative economic profit.
b. is earning zero economic profit.
c. is maximizing profit.
d. should increase its output to maximize profit.
e. should reduce output to maximize negative economic profit.
ANS: A DIF: Moderate REF: 1.b OBJ: ch. 08, 1
NAT: Reflective Thinking | Reading and Interpreting Graphs TOP: Profit Maximization
MSC: Application
30. A firm enjoys a positive economic profit when:

a. the demand curve touches the average cost curve at the profit maximizing level of output.
b. the marginal revenue curve has a negative intercept in the ordinate axis.
c. the average revenue curve lies below the average cost curve at the profit maximizing level
of output.
d. the marginal cost is declining at the profit maximizing level of output.
e. the average revenue curve lies above the average cost curve at the profit maximizing level
of output.
ANS: E DIF: Moderate REF: 1.b OBJ: ch. 08, 1
NAT: Analytic | Reading and Interpreting Graphs TOP: Profit Maximization
MSC: Knowledge
31. Graphically, total cost is equal to the area of the:

a. triangle formed under the demand curve.
b. rectangle formed under the demand curve at a given price and quantity combination.
c. rectangle formed under the average-total-cost curve at a given ATC and quantity
combination.
d. triangle formed by a line segment between the demand and average-total-cost curves.
e. triangle formed by a line segment between the horizontal axis and the average-total-cost
curves.
ANS: C DIF: Moderate REF: 1.b OBJ: ch. 08, 1
MSC: Knowledge
32. Graphically, total revenue is represented by the:

a. triangle formed under the demand curve.
b. rectangle formed under the demand curve at a given price and quantity combination.
c. rectangle formed under the average-total-cost curve at a given ATC and quantity
combination.
d. line segment between the demand and average-total-cost curves at any level of output.
e. the line segment between the horizontal axis and the average-total-cost curves at any level
of output.
ANS: B DIF: Moderate REF: Ch 8, 1.b OBJ: ch. 08, 1
33. Graphically, profit per unit of output can be found by:

a. the triangle formed under the demand curve.
b. the rectangle formed under the demand curve at a given price and quantity combination.
c. the rectangle formed under the average-total-cost curve at a given ATC and quantity
combination.
d. the line segment between the demand and average-total-cost curves at any level of output.
e. the line segment between the horizontal axis and the average-total-cost curves at any level
of output.
ANS: D DIF: Moderate REF: 1.b OBJ: ch. 08, 1
MSC: Application
NARRBEGIN: Figure 8.1

The following graph shows the demand and cost curves of an imperfectly competitive firm. MC and
ATC represent the marginal cost curve and the average cost curve respectively.
Figure 8.1
NARREND
34. Refer to Figure 8.1. At price P1 the firm sells quantity Q1, and total revenue is shown by:
a. the rectangle ABCD.
b. the rectangle ABEF.
c. the rectangle FECD.
d. the distance AB.
e. the distance BC.
MSC: Application
35. Refer to Figure 8.1. At price P1 the firm sells quantity Q1, and total cost is shown by:
a. the rectangle ABCD.
b. the rectangle ABEF.
c. the rectangle FECD.
d. the distance AB.
e. the distance BC.
ANS: B DIF: Moderate REF: 1.b OBJ: ch. 08, 1
MSC: Application
36. According to Figure 8.1, what is the firm’s profit when it sells quantity Q1 at price P1?
a. Rectangle ABCD
b. Rectangle DCEF
c. Rectangle ABEF
d. Distance AB
e. Distance FD
MSC: Application
37. In Table 8.1, in order to maximize profits, the firm should increase output until the ____ unit of output.
a. fifth
b. sixth
c. seventh
d. eighth
e. ninth
ANS: D DIF: Moderate REF: Ch 8, 1.a OBJ: ch. 08, 1

The following graph shows the marginal revenue (MR) and marginal cost (MC) curves of an
imperfectly competitive firm.
Figure 8.2
NARREND
38. According to Figure 8.2, the firm is maximizing profit at a quantity of _____ units.
a. 10
b. 35
c. 50
d. 75
e. 90
ANS: D DIF: Easy REF: 1.b OBJ: ch. 08, 1
MSC: Application
39. Refer to Figure 8.2. If the current production level is 90 and the firm wishes to maximize profit, it
should:
a. leave the current production level unchanged.
b. decrease the quantity produced to 75.
c. decrease the quantity produced to 50.
d. decrease the quantity produced to 35.
e. increase production until MR = MC.
MSC: Application
40. Refer to Figure 8.2. At a quantity of 10 the firm should _____ , but at a quantity of 75 the firm should
_____.
a. leave production unchanged; also leave production unchanged
b. leave production unchanged; decrease production
c. increase production; decrease production
d. increase production; leave production unchanged
e. decrease production; increase production
MSC: Application

The figure given below shows the cost curves of a firm.
Figure 8.3
ATC: Average Total Cost

AVC: Average Variable Cost
MC: Marginal Cost
NARREND
41. In Figure 8.3, what is the total cost of producing 140 units of the output?
a. $40
b. $55
c. $300
d. $5,600
e. $7,700
ANS: E DIF: Moderate REF: Ch 8, 1.b OBJ: ch. 08, 1
MSC: Application
42. In Figure 8.3, what is marginal cost at a quantity of 120 units?
a. $35
b. $40
c. $55
d. $60
e. $4,800
ANS: B DIF: Easy REF: Ch 8, 1.b OBJ: ch. 08, 1
MSC: Application
43. In Figure 8.3, if the marginal revenue of the firm is constant at $55, calculate the profit earned by the
firm?
a. $35
b. $40
c. $600
d. $4,800
e. $0
ANS: E DIF: Challenging REF: Ch 8, 1.b OBJ: ch. 08, 1
44. Refer to Figure 8.3. If the firm maximizes profits at 120 units of the output, calculate the firm’s
marginal revenue.
a. $35
b. $40
c. $55
d. $4,200
e. Cannot be determined from the information given.
ANS: B DIF: Challenging REF: Ch 8, 1.b OBJ: ch. 08, 1

The figure given below shows the revenue and cost curves of a firm. MC represents the marginal cost
curve, AC the average cost curve, MR the marginal revenue curve, and AR the average revenue curve.
Figure 8.4
NARREND
45. Refer to Figure 8.3. The profit maximizing level of output is:
a. 80 units.
b. 70 units.
c. 60 units.
d. 50 units.
e. 40 units.
MSC: Application
46. Refer to Figure 8.3. The firm suffers a negative profit of:
a. 100 units.
b. 50 units.
c. 80 units.
d. 150 units.
e. 250 units.
ANS: B DIF: Challenging REF: 1.b OBJ: ch. 08, 1
MSC: Application
47. Which among the following does not determine the shape of the demand curve under different market
structures?
a. Number of substitutes in the market
b. Importance of the good in consumer’s budget
c. Cost structure of the firm
d. Price-elasticity of demand
e. The length of time being considered
ANS: C DIF: Moderate REF: 2 OBJ: ch. 08, 2
NAT: Analytic | Equilibrium TOP: Selling Environments or Market Structure
MSC: Knowledge
48. If barriers to entry exist in a market, then:
a. the costs of entry and exit are relatively low.
b. there will be few close substitutes of the product in the market.
c. firms will be incurring losses in both the short and long runs.
d. firms will tend to have relatively less monopoly power.
e. the existing firms will quit the market in the long run due to mounting losses.
MSC: Application
49. Under perfect competition, at the profit maximizing level of output:

a. price is greater than marginal revenue.
b. price is equal to marginal revenue.
c. marginal revenue is equal to zero.
d. the marginal revenue curve is downward sloping.
e. the average revenue curve is upward sloping.
MSC: Knowledge
50. The ordering of market structures from most market power to least market power (where market power
is the ability to set its own price) is:
a. monopoly, monopolistic competition, oligopoly, perfect competition.
b. perfect competition, monopolistic competition, oligopoly, monopoly.
c. oligopoly, monopoly, monopolistic competition, perfect competition.
d. monopoly, oligopoly, monopolistic competition, perfect competition.
e. monopoly, perfect competition, monopolistic competition, oligopoly.
ANS: D DIF: Moderate REF: 2.a OBJ: ch. 08, 2
MSC: Knowledge
51. In general, the two extreme cases of market structure models are represented by
a. monopolistic competition and oligopoly.
b. oligopoly and monopoly.
c. oligopoly and perfect competition.
d. perfect competition and monopoly.
e. perfect monopoly and oligopolistic competition.
ANS: D DIF: Easy REF: Ch 8, 2.a OBJ: ch. 08, 2
TOP: Selling Environments or Market Structure MSC: Knowledge
52. An industry which has no barriers to entry, no product promotion strategy, a standardized product, and
a very large number of firms operating within it, is said to have:
a. a monopoly market structure.
b. perfect competition.
c. monopsonistic competition.
d. monopolistic competition.
e. an oligopoly market structure.
ANS: B DIF: Easy REF: Ch 8, 2.a OBJ: ch. 08, 2
NAT: Analytic | Understanding and Applying Economic Models
53. Firms under perfect competition produce:

a. homogeneous products.
b. unique products.
c. either standardized or differentiated products.
d. differentiated products.
e. antique products.
ANS: A DIF: Moderate REF: 2.a.1 OBJ: ch. 08, 2
NAT: Analytic | Perfect Competition TOP: Selling Environments or Market Structure
MSC: Knowledge
54. A(n) ____ is a price taker.

a. monopolistic firm.
b. oligopoly firm.
c. perfectly competitive firm.
d. monopolistically competitive firm.
e. duopoly firm.
MSC: Knowledge
55. In a perfectly competitive industry, the price of good A is $2. If a firm in this inudustry decides to
increase its price to $2.50, it will:
a. realize an increase in profits of $.50 per unit.
b. be able to increase the quantity sold.
c. be unable to sell any quantity of good A that is produced.
d. lose some of its customers in the market.
e. experience a decrease in profits of $.50 per unit.
ANS: C DIF: Moderate REF: Ch 8, 2.a OBJ: ch. 08, 2
NAT: Reflective Thinking | Perfect Competition
TOP: Selling Environments or Market Structure MSC: Application
56. The only decision that a perfectly competitive firm makes is:
a. what price to charge.
b. what quantity to produce.
c. how much to spend on advertisements.
d. how much to price discriminate.
e. how to differentiate its products from its rivals.
ANS: B DIF: Moderate REF: Ch 8, 2.b OBJ: ch. 08, 2
MSC: Knowledge
57. Identify the characteristics of a monopoly firm.

a. Barred entry and homogeneous product
b. Unique product and large number of sellers
c. Standardized product and price taker
d. Barred entry and price taker
e. Barred entry and price maker
ANS: E DIF: Easy REF: 2.a.2 OBJ: ch. 08, 2
NAT: Analytic | Monopoly TOP: Selling Environments or Market Structure
MSC: Knowledge
58. Monopoly is a market structure in which:

a. there are significant barriers to the entry of new firms.
b. the firms face a perfectly elastic demand curve.
c. there are a large number of close substitutes for the good.
d. a homogeneous product is sold.
e. the firms are price takers.
MSC: Knowledge
59. Why does a monopolist face the market demand curve?

a. Presence of a large number of substitutes
b. Presence of large number of buyers in the market
c. Barred entry of any new firm in the market
d. Produces a homogeneous product
e. Consumers have perfect knowledge of the market
ANS: C DIF: Easy REF: 2.a.2 OBJ: ch. 08, 2
MSC: Knowledge
60. Which of the following is not true of monopolistic competition?

a. There are a large number of buyers and sellers.
b. The firms produce differentiated products.
c. There exists free entry and exit of firms.
d. Each of the firms faces a horizontal demand curve.
e. Each of the firms act as a minimonopoly in the market.
ANS: D DIF: Easy REF: 2.a.3 OBJ: ch. 08, 2
NAT: Analytic | Monopolistic Competition
61. Steve is about to start up a business in a monopolistically competitive market. Which of the following
can he expect?
a. He can expect market entry to be difficult as there exist entry barriers.
b. He can expect to enjoy a huge market power.
c. He can expect to face a highly inelastic demand curve.
d. He can expect to find close substitutes of the product he is planning to produce.
e. He can expect to face an infinitely elastic demand curve.
ANS: D DIF: Moderate REF: 2.a.3 OBJ: ch. 08, 2
NAT: Reflective Thinking | Monopolistic Competition
62. Which of the following characteristics distinguishes oligopoly from other market structures?
a. Firms operating in an oligopoly are independent of each other.
b. Firms operating in an oligopoly are interdependent.
c. Oligopoly is the simplest of all the other market structures.
d. An oligopolist does not face a downward-sloping demand curve.
e. Entry into an oligopolistic market is easier than entry into a monopolistically competitive
market.
NAT: Analytic | Oligopoly TOP: Selling Environments or Market Structure
MSC: Knowledge
63. A(n) ____ may offer products that are either differentiated or identical.
a. monopolistically competitive firm
b. monopolist
c. oligopolistic firm
d. perfectly competitive firm
e. monopsonist
ANS: C DIF: Easy REF: Ch 8, 2.a OBJ: ch. 08, 2
MSC: Knowledge
64. In contrast to both perfect competition and monopolistic competition, an oligopoly market structure is
characterized by:
a. price discrimination.
b. a perfectly inelastic demand curve.
c. the presence of infinite number of firms.
d. only differentiated products.
e. difficulty in the entry of new firms.
ANS: E DIF: Easy REF: Ch 8, 2.a OBJ: ch. 08, 2
MSC: Knowledge
65. Under imperfect competition:

a. demand curve lies below the marginal revenue curve.
b. demand curve lies above the marginal revenue curve.
c. demand curve coincides with the marginal revenue curve.
d. demand curve coincides with the marginal cost curve.
e. demand curve coincides with the average cost curve.
ANS: B DIF: Easy REF: 2.b OBJ: ch. 08, 2
MSC: Knowledge
66. The demand curve faced by a perfectly competitive firm is:

a. perfectly inelastic.
b. relatively elastic.
c. unit elastic.
d. perfectly elastic.
e. relatively inelastic.
ANS: D DIF: Easy REF: 2.b OBJ: ch. 08, 2
MSC: Knowledge
67. A monopolist faces the least price elastic demand curve because:
a. the consumers have only one place to buy the good.
b. the monopolist produces a standardized product.
c. the monopolist undertakes a huge expenditure to produce the product.
d. the monopolist supplies an insignificant portion of the market.
e. the monopolist produces an absolutely necessary good having close substitutes.
NAT: Reflective Thinking | Monopoly TOP: Selling Environments or Market Structure
MSC: Application
68. A monopolistically competitive firm faces a relatively elastic demand curve than a monopolist firm
because of the:
a. presence of a large number of buyers and barriers to entry.
b. presence of a large number of firms and easy entry.
c. production a perfectly homogeneous products.
d. production of unique products and presence of barriers to entry.
e. production of goods that are perfect complements of each other.
MSC: Knowledge
69. A downward-sloping demand curve is faced by firms:

a. under perfect competition
b. under perfect competition and monopoly
c. in all market structures except monopoly
d. in all market structures except monopolistic competition
e. in all market structures except perfect competition
ANS: E DIF: Easy OBJ: ch. 08, 2
70. The characteristic that distinguishes a perfectly competitive market from a monopolistically
competitive market is the:
a. ease of entry.
b. number of firms operating in the market.
c. degree of government regulation in the activities of the firms.
d. product differentiation.
e. extent of market share of each firm.
ANS: D DIF: Easy REF: Ch 8, 2.a OBJ: ch. 08, 2

The following figure shows the cost and revenue structures of a firm. MC represents the marginal cost
curve, AC represents the average cost curve, AR represents the average revenue curve, and MR
represents the marginal revenue curve. P* is the equilibrium price and Q* is the equilibrium output.
Figure 8.5
NARREND
71. Refer to Figure 8.5. Identify the market structure in which the firm operates:
a. Perfect competition
b. Monopolistic competition
c. Monopoly
d. Oligopoly
e. Duopoly
NAT: Reflective Thinking | Perfect Competition
72. Accounting profit of a business firm is also called:

a. royalty income.
b. net income from equity.
c. compensatory income.
d. windfall gain.
e. net operating income.
ANS: E DIF: Easy REF: 3.a OBJ: ch. 08, 3
TOP: Measuring Economic Profit MSC: Knowledge
73. Accounting profit does not include:

a. explicit cost.
b. sunk cost.
c. fixed cost.
d. opportunity cost.
e. variable cost.
ANS: D DIF: Easy REF: 3.a OBJ: ch. 08, 3
TOP: Measuring Economic Profit MSC: Knowledge
74. The opportunity cost of capital is:

a. the cost of labor inputs required to operate that capital.
b. the cost of raw materials necessary to put that capital to work.
c. the payment necessary to keep that capital from moving to an alternative use.
d. the costs of maintenance necessary to keep that capital operating.
e. the cost of hiring more units of capital to generate additional units of output.
ANS: C DIF: Easy REF: 3.a OBJ: ch. 08, 3
NAT: Analytic | Costs of Production TOP: Measuring Economic Profit
MSC: Knowledge
75. Suppose Mark invests a sum of $100,000 in a new venture. To fund his investment, Mark withdraws
$50,000 from a savings account paying 10% per year and uses the proceeds from a bond that has just
matured worth $50,000. If he had reinvested the proceeds from the bond he could have earned interest
at the rate of 5%. Calculate the opportunity cost of capital for Mark in a particular year?
a. $5,000
b. $7,500
c. $10,000
d. $12,500
e. $100,000
ANS: B DIF: Challenging REF: Ch 8, 3.a OBJ: ch. 08, 3
NAT: Reflective Thinking | Costs of Production TOP: Measuring Economic Profit
MSC: Application
NARRBEGIN: Scenario 8.1

Scenario 8.1
Jane left her job at Siemens and started her own boutique. She used to earn $50,000 annually at
Siemens. She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture.
She agreed to repay the loan with 10% interest. Her business is bringing in $80,000 annually. She has
rent and labor expenses of $15,000. Also assume that Jane could have used her own money i.e.
$20,000 to buy stocks in Intel which would have returned 5% to her last year.
NARREND
76. Refer to Scenario 8.1 and calculate Jane’s accounting profit.

a. $50,000.
b. $65,000.
c. $80,000.
d. $64,000.
e. $35,000.
ANS: D DIF: Challenging REF: 3.a OBJ: ch. 08, 3
NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics
TOP: Measuring Economic Profit MSC: Application
77. Refer to Scenario 8.1. Compute Jane’s economic profit.

a. $13,000
b. $14,000
c. $20,000
d. $15,000
e. $10,000
ANS: A DIF: Challenging REF: 3.a OBJ: ch. 08, 3
NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics
TOP: Measuring Economic Profit MSC: Application
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A BREAD PUDDING.
Sweeten a pint of new milk with three ounces of fine sugar, throw
in a few grains of salt, and pour it boiling on half a pound of fine and
lightly-grated bread-crumbs; add an ounce of fresh butter, and cover
them with a plate; let them remain for half an hour or more, and then
stir to them four large well-whisked eggs, and a flavouring of nutmeg
or of lemon-rind; pour the mixture into a thickly-buttered mould or
basin, which holds a pint and a half, and which ought to be quite full;
tie a paper and a cloth tightly over, and boil the pudding for exactly
an hour and ten minutes. This is quite a plain receipt, but by omitting
two ounces of the bread, and adding more butter, one egg, a small
glass of brandy, the grated rind of a lemon, and as much sugar as
will sweeten the whole richly, a very excellent pudding will be
obtained; candied orange-peel also has a good effect when sliced
thinly into it; and half a pound of currants is generally considered a
further improvement.
New milk, 1 pint; sugar, 3 oz.; salt, few grains; bread-crumbs, 1/2
lb.; eggs, 4 (5, if very small); nutmeg or lemon-rind at pleasure: 1
hour and 10 minutes.
Or: milk, 1 pint; bread-crumbs, 6 oz.; butter, 2 to 3 oz.; sugar, 4
oz.; eggs, 5; brandy, small glassful; rind, 1 lemon. Further additions
at choice: candied peel, 1-1/2 oz.; currants, 1/2 lb.
A BROWN BREAD PUDDING.
To half a pound of stale brown bread, finely and lightly grated, add
an equal weight of suet chopped small, and of currants cleaned and
dried, with half a saltspoonful of salt, three ounces of sugar, the third
of a small nutmeg grated, two ounces of candied peel, five well-
beaten eggs, and a glass of brandy. Mix these ingredients
thoroughly, and boil the pudding in a cloth for three hours and a half.
Send port wine sauce to table with it. The grated rind of a large
lemon may be added to this pudding with good effect.
Brown bread, suet, and currants, each 8 oz.; sugar, 3 oz.; candied
peel, 2 oz.; salt, 1/2 saltspoonful; 1/3 of small nutmeg; eggs, 5;
brandy, 1 wineglassful: 3-1/2 hours.
A GOOD BOILED RICE PUDDING.
Swell gradually,[148] and boil until quite soft and thick, four
ounces and a half of whole rice in a pint and a half of new milk;
sweeten them with from three to four ounces of sugar, broken small,
and stir to them while they are still quite hot, the grated rind of half a
large lemon, four or five bitter almonds, pounded to a paste, and four
large well-whisked eggs; let the mixture cool, and then pour it into a
thickly-buttered basin, or mould, which should be quite full; tie a
buttered paper and a floured cloth over it, and boil the pudding
exactly an hour; let it stand for two or three minutes before it is
turned out, and serve it with sweet sauce, fruit syrup, or a compôte
of fresh fruit. An ounce and a half of candied orange-rind will improve
it much, and a couple of ounces of butter may be added to enrich it,
when the receipt without is considered too simple. It is excellent
when made with milk highly flavoured with cocoa-nut, or with vanilla.
148. That is to say, put the rice into the milk while cold, heat it slowly, and let it
only simmer until it is done.
Whole rice, 4-1/2 oz.; new milk (or cocoa-nut-flavoured milk), 1-1/2
pint; sugar, 3 to 4 oz.; salt, a few grains; bitter almonds, 4 to 6; rind
of 1/2 lemon; eggs, 4: boiled 1 hour.
CHEAP RICE PUDDING.
Wash six ounces of rice, mix it with three quarters of a pound of

raisins, tie them in a well-floured cloth, giving them plenty of room to
swell; boil them exactly an hour and three quarters, and serve the
pudding with very sweet sauce: this is a nice dish for the nursery. A
pound of apples pared, cored, and quartered, will also make a very
wholesome pudding, mixed with the rice, and boiled from an hour
and a quarter to an hour and a half; and sultana raisins and rice will
give another good variety of this simple pudding.
Rice, 6 oz.; raisins, 1/2 lb.: 2 hours. Or, rice, 6 oz.; apples, 1 lb.: 1-
1/4 to 1-1/2 hour.
RICE AND GOOSEBERRY PUDDING.
Spread six ounces of rice equally over a moist and well-floured

pudding-cloth, and place on it a pint of green gooseberries,
measured after the heads and stalks have been taken off. Gather the
cloth up carefully round the fruit, give room for the rice to swell, and
boil the pudding for an hour and a quarter. Very sweet sauce, or
plenty of sugar, should be eaten with it.
Rice, 6 oz.; green gooseberries, 1 pint: 1-1/2 hour.
FASHIONABLE APPLE DUMPLINGS.
These are boiled in small knitted or closely-netted cloths (the

former have, we think, the prettiest effect), which give quite an
ornamental appearance to an otherwise homely dish. Take out the
cores without dividing the apples, which should be large, and of a
good boiling kind, and fill the cavities with orange or lemon
marmalade; enclose them in a good crust rolled thin, draw the cloths
round them, tie them closely, and boil them for three quarters of an
hour. Lemon dumplings may be boiled in the same way.
3/4 to 1 hour, if the apples be not of the best boiling kind.
ORANGE SNOW-BALLS.
Take out the unhusked grains, and wash well half a pound of rice;
put it into plenty of water, and boil it rather quickly for ten minutes;
drain and let it cool. Pare four large, or five small oranges, and clear
from them entirely the thick white inner skin; spread the rice, in as
many equal portions as there are oranges, upon some pudding or
dumpling cloths; tie the fruit separately in these, and boil the snow-
balls for an hour and a half; turn them carefully on to a dish, and
strew plenty of sifted sugar over them. The oranges carefully pared
may be enclosed in a thin paste and boiled for the same time. Rice,
8 oz.; China oranges, 5: 1-1/2 hour.
APPLE SNOW-BALLS.
Pare and core some large pudding-apples, without dividing them,

prepare the rice as in the foregoing receipt, enclose them in it, and
boil them for one hour: ten minutes less will be sufficient should the
fruit be but of moderate size. An agreeable addition to them is a slice
of fresh butter, mixed with as much sugar as can be smoothly
blended with it, and a flavouring of powdered cinnamon, or of
nutmeg: this must be sent to table apart from them, not in the dish.
LIGHT CURRANT DUMPLINGS.
For each dumpling take three tablespoonsful of flour, two of finely-

minced suet, and three of currants, a slight pinch of salt, and as
much milk or water as will make a very thick batter of the ingredients.
Tie the dumplings in well-floured cloths, and boil them for a full hour:
they may be served with very sweet wine sauce.
LEMON DUMPLINGS. (LIGHT AND GOOD.)
Mix, with ten ounces of fine bread-crumbs, half a pound of beef

suet, chopped extremely small, one large tablespoonful of flour, the
grated rinds of two small lemons, or of a very large one, four ounces
of pounded sugar, three large or four small eggs beaten and
strained, and last of all, the juice of the lemons, or part of it, also
strained. Divide these into four equal portions, tie them in well-
floured cloths, and boil them an hour. The dumplings will be
extremely light and delicate: if wished very sweet, more sugar must
be added to them. The syrup of preserved ginger would be both a
wholesome and appropriate sauce for them.
SUFFOLK, OR HARD DUMPLINGS.
Mix a little salt with some flour, and make it into a smooth and
rather lithe paste, with cold water or skimmed milk; form it into
dumplings, and throw them into boiling water: in half an hour they will
be ready to serve. A better kind of dumpling is made by adding
sufficient milk to the flour to form a thick batter, and then tying the
dumplings in small well-floured cloths. In Suffolk farmhouses, they
are served with the dripping-pan gravy of roast meat, and they are
sometimes made very small indeed, and boiled with stewed shin of
beef.
NORFOLK DUMPLINGS.
Take a pound of dough from a baking of very light white bread,

and divide it into six equal parts; mould these into dumplings, drop
them into a pan of fast boiling water, and boil them quickly from
twelve to fifteen minutes. Send them to table the instant they are
dished, with wine sauce or raspberry vinegar. In some counties they
are eaten with melted butter, well sweetened, and mixed with a little
vinegar. They must never be cut, but should be torn apart with a
couple of forks.
SWEET BOILED PATTIES. (GOOD.)
Mix into a very smooth paste, three ounces of finely-minced suet

with eight of flour, and a light pinch of salt; divide it into fourteen balls
of equal size, roll them out quite thin and round, moisten the edges,
put a little preserve into each, close the patties very securely to
prevent its escape, throw them into a pan of boiling water, and in
from ten to twelve minutes lift them out, and serve them instantly.
Butter-crust may be used for them instead of suet but it will not be so
light.
Flour, 8 oz.; suet, 3 oz.; little salt; divided into fourteen portions:
boiled 10 to 12 minutes.
BOILED RICE TO BE SERVED WITH STEWED FRUITS,
PRESERVES, OR RASPBERRY VINEGAR.
Take out the discoloured grains from half a pound of good rice;
and wash it in several waters; tie it very loosely in a pudding cloth,
put it into cold water; heat it slowly, and boil it for quite an hour, it will
then be quite solid and resemble a pudding in appearance. Sufficient
room must be given to allow the grain to swell to its full size, or it will
be hard; but too much space will render the whole watery. With a
little experience, the cook will easily ascertain the exact degree to be
allowed for it. Four ounces of rice will require quite three quarters of
an hour’s boiling; a little more or less of time will sometimes be
needed, from the difference of quality in the grain. It should be put
into an abundant quantity of water, which should be cold and then
very slowly heated.
Carolina rice, 1/2 lb.: boiled 1 hour. 4 oz.: 3/4 hour.
CHAPTER XXI.
Baked Puddings.
Pudding garnished with

Preserves.
INTRODUCTORY REMARKS.
We have little to add here to the remarks

which will be found at the commencement
of the preceding Chapter, as they will apply
equally to the preparation of these and of
boiled puddings.
All of the custard kind, whether made of
eggs and milk only, or of sago, arrow-root,
rice, ground or in grain, vermicelli, &c., Baked Pudding
require a very gentle oven, and are spoiled Mould.
by fast-baking. Those made of batter on the
contrary, should be put into one sufficiently
brisk to raise them quickly but without scorching them. Such as
contain suet and raisins must have a well-heated but not a fierce
oven; for as they must remain long in it to be thoroughly done,
unless carefully managed they will either be much too highly
coloured or too dry.
By whisking to a solid froth the whites of the eggs used for any
pudding, and stirring them softly into it at the instant of placing it in
the oven it will be rendered exceedingly light, and will rise very high
in the dish; but as it will partake then of the nature of a soufflé, it
must be despatched with great expedition to table from the oven, or
it will become flat before it is served.
When a pudding is sufficiently browned on the surface (that is to
say, of a fine equal amber-colour) before it is baked through, a sheet
of writing paper should be laid over it, but not before it is set: when
quite firm in the centre it will be done.
Potato, batter, plum, and every other kind of pudding indeed which
is sufficiently solid to allow of it, should be turned on to a clean hot
dish from the one in which it is baked, and strewed with sifted sugar
before it is sent to table.
Minute directions for the preparation and management of each
particular variety of pudding will be found in the receipt for it.
A BAKED PLUM PUDDING EN MOULE, OR MOULDED.
Mingle thoroughly in a large pan or bowl half a pound of the nicest

beef-kidney suet minced very small, half a pound of carefully stoned
raisins, as many currants, four ounces of pounded sugar, half a
pound of flour, two ounces of candied citron and lemon or orange
rind, four large well whisked eggs, a small cup of milk, a glass of
brandy, a tiny pinch of salt, and some nutmeg or powdered ginger.
Beat the whole up lightly, pour it into a well-buttered mould or cake-
tin and bake it in a moderate oven from an hour and a half to two
hours. Turn it from the mould and send it quickly to table with
Devonshire cream, or melted apricot marmalade for sauce.
THE PRINTER’S PUDDING.
Grate very lightly six ounces of the crumb of a stale loaf, and put it
into a deep dish. Dissolve in a quart of cold new milk four ounces of
good Lisbon sugar; add it to five large, well-whisked eggs, strain,
and mix them with the bread-crumbs; stir in two ounces of a fresh
finely-grated cocoa-nut; add a flavouring of nutmeg or of lemon-rind,
and the slightest pinch of salt; let the pudding stand for a couple of
hours to soak the bread; and bake it in a gentle oven for three-
quarters of an hour: it will be excellent if carefully made, and not too
quickly baked. When the cocoa-nut is not at hand, an ounce of butter
just dissolved, should be poured over the dish before the crumbs are
put into it; and the rind of an entire lemon may be used to give it
flavour; but the cocoa-nut imparts a peculiar richness when it is good
and fresh.
Bread-crumbs, 6 oz.; new milk, 1 quart; sugar, 4 oz.; eggs, 5;
cocoa-nut, 2 oz. (or rind, 1 large lemon, and 1 oz. butter); slightest
pinch of salt: to stand 2 hours. Baked in gentle oven full 3/4 hour.
Obs.—When a very sweet pudding is liked, the proportion of sugar
may be increased.

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1. In economic theory, we assume that the goal of the firm is to:

2. Profit is the difference between:

NARRBEGIN: Table 8.1

8. In Table 8.1, marginal revenue exceeds marginal cost:

NARRBEGIN: Table 8.2

17. Which of the following is true of marginal revenue?

18. The MR schedule can be obtained from the TR schedule by:

19. Marginal revenue of nth unit of output is:

20. Which of the following is true of marginal cost?

21. A producer can raise profit by expanding output if:

23. Profit of a firm is maximized when:

24. A profit-maximizing firm will produce the level of output at which:

30. A firm enjoys a positive economic profit when:

31. Graphically, total cost is equal to the area of the:

32. Graphically, total revenue is represented by the:

33. Graphically, profit per unit of output can be found by:

NARRBEGIN: Figure 8.1

NARRBEGIN: Figure 8.2

NARRBEGIN: Figure 8.3

ATC: Average Total Cost

NARRBEGIN: Figure 8.4

49. Under perfect competition, at the profit maximizing level of output:

53. Firms under perfect competition produce:

54. A(n) ____ is a price taker.

57. Identify the characteristics of a monopoly firm.

58. Monopoly is a market structure in which:

59. Why does a monopolist face the market demand curve?

60. Which of the following is not true of monopolistic competition?

65. Under imperfect competition:

66. The demand curve faced by a perfectly competitive firm is:

69. A downward-sloping demand curve is faced by firms:

NARRBEGIN: Figure 8.5

72. Accounting profit of a business firm is also called:

73. Accounting profit does not include:

74. The opportunity cost of capital is:

NARRBEGIN: Scenario 8.1

76. Refer to Scenario 8.1 and calculate Jane’s accounting profit.

77. Refer to Scenario 8.1. Compute Jane’s economic profit.

Wash six ounces of rice, mix it with three quarters of a pound of

Spread six ounces of rice equally over a moist and well-floured

These are boiled in small knitted or closely-netted cloths (the

Pare and core some large pudding-apples, without dividing them,

For each dumpling take three tablespoonsful of flour, two of finely-

Mix, with ten ounces of fine bread-crumbs, half a pound of beef

Take a pound of dough from a baking of very light white bread,

Mix into a very smooth paste, three ounces of finely-minced suet

Pudding garnished with

We have little to add here to the remarks

Mingle thoroughly in a large pan or bowl half a pound of the nicest

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