ECS 2601 Assignment 4 (QUIZ) Semester 1 2023

1. In the short run, a perfectly competitive firm earning positive profit is …
In the short run, a perfectly competitive firm earning positive profit is above its
average total cost (ATC). This is because profit is calculated as the difference
between total revenue and total cost. If the firm's total revenue exceeds its
total cost, it is earning a profit. Since average total cost represents the cost
per unit of output, if the firm is earning a profit, it means that the price it
receives for each unit of output is higher than the average cost of producing
that unit.
a. at the minimum of its ATC.
b. on the upward sloping portion of its ATC.
c. on the downward sloping portion of its ATC.
d. above its ATC.
2. If current output is less than the profit-maximising output, then the next unit
produced will…
If the current output is less than the profit-maximizing output, producing an
additional unit will increase revenue more than it increases cost. This is
because the profit-maximizing output level is determined by comparing
marginal revenue (the additional revenue from selling one more unit) with
marginal cost (the additional cost of producing one more unit). If the current
output is below the profit-maximizing level, producing an additional unit will
increase revenue by more than it increases cost, leading to an increase in
profit.
a. increase revenue more than it increases cost.
b. decrease profit.
c. increase revenue without increasing cost.
d. increase cost more than it increases revenue.
3. Which of the following statements is correct regarding the perfectly
competitive industry?
In a perfectly competitive industry, firms aim to maximize their economic profit.
Economic profit is the difference between total revenue and total cost,
including both explicit costs (such as wages, rent, and materials) and implicit
costs (the opportunity costs of the resources used in production). If a firm is
making zero economic profit, it means that it is covering all its costs, including
the opportunity costs. This implies that the firm is earning a normal return on
its resources and is not generating any additional profit above and beyond the
opportunity costs of production.
Note: The statement "Due to free entry and exit, the level of production
efficiency for a firm is greater in the short run than in the long run" is not
included in the given options and is therefore not applicable to this question.
a. In the long run, firms’ economic profit can take any value.
b. Firms will always make positive economic profit in the long run, unlike in the
short run.
c. A firm making zero economic profit is essentially covering all the opportunity
costs of production.
d. Due to free entry and exit, the level of production efficiency for a firm is
greater in the short run than in the long run.