Costs, Losses, Profits, Revenues

A mobile phone company finds that its total costs are best illustrated by the following curve. What can be deduced about costs over the usual range of output AB?

• Total costs are rising

• Marginal costs are zero

• Average costs are constant

• Average costs are rising

• Marginal costs are rising

The diagram shows the supply, demand and marginal revenue schedules for parking spaces in a local government car park. What single price will ensure that the local government maximises total revenue?

• Zero

• 0J

• 0K

• 0F

• 0W

If a firm’s fixed costs increase by 20 per cent, marginal costs will increase by:

• zero

• 10%

• 20%

• 100%

• 200%

A pizza restaurant faces the demand curve below. Which one of the following is necessarily true?

• Marginal revenue will be positive then negative as price falls

• Revenue maximisation occurs at a price of £6

• Sales are maximised at a price of £6

• Average revenue will equal zero where price elasticity of demand is unitary

• Cutting the price from £6 to £5 will increase profits

A profit maximising monopolist operates at the output level where:

• average revenue equals average cost

• total revenue is at a maximum

• the price is equal to the marginal cost

• the price is equal to the marginal revenue

• the marginal profit is zero

Which of the following best explains the shape of the short run marginal cost curve between X and Y?

• The law of diminishing marginal returns

• The law of increasing marginal product

• Average costs are rising

• Average variable costs are rising

• Economies of scale

A firm is experiencing a fall in short run average total costs as output rises. Which of the following must be true?

• Marginal costs are rising

• Marginal costs are falling

• There are economies of scale

• Marginal costs are above average total costs

• Marginal costs are below average total costs

A firm which prints greetings cards records its short run costs. It observes that the average cost per card decreases as more are produced, although the marginal cost is rising. It follows that

• there are economies of scale

• marginal costs are below average costs

• the law of diminishing returns has not yet set in

• the fixed costs are zero

• marginal costs rise whenever average costs fall

The diagram shows the costs and revenues for a profit maximising firm in a market. The most likely outcome for the firm, assuming no change in costs or demand, is to

• continue in business and make supernormal profit ZYWX

• continue in business and raise the price

• continue in business and cut the price

• continue in business in the short run but shut down in the long run

• shut down immediately

The diagrams represent the revenue and cost conditions for an industry and one individual profit maximising firm within the industry. Output T indicates that the firm is making

• normal profit and price and output will remain unchanged

• supernormal profit and price will fall as new firms enter the industry

• a loss and will shut down in the short run

• a loss and will continue producing in the short run

• supernormal profit and price will rise in the long run