AP Micro AP Micro Profit Maximization 2

Question 1

In the short run, a firm experiencing an economic loss should continue operating if:

Accepted Answer

Price exceeds average variable cost

Answer

If P > AVC, the firm covers variable costs and contributes to fixed costs, so operating is better than shutting down.

Question 2

For a monopolist, marginal revenue is less than price because:

Accepted Answer

It faces a downward-sloping demand curve and must lower price on all units to sell more

Answer

To sell one more unit, a monopolist must lower the price on all units sold, so MR < P.

Question 3

A profit-maximizing monopolist produces where MR = MC and charges a price:

Accepted Answer

Read from the demand curve above the MR = MC output

Answer

After finding the MR = MC quantity, the monopolist charges the highest price consumers will pay, found on the demand curve at that quantity.

Question 4

A firm's short-run supply curve in a competitive market is its:

Accepted Answer

Marginal cost curve above the minimum AVC

Answer

A competitive firm supplies along its MC curve at prices above the shutdown point (minimum AVC).

Question 5

Normal profit is best described as:

Accepted Answer

The opportunity cost of the owner's resources (zero economic profit)

Answer

Normal profit equals the implicit costs (opportunity costs) of the owner's resources, so economic profit is zero.

AP Practice Test