Review on revenue and cost

1.     Draw TR, AR and MR curve in one diagram (price changes according to law of demand)

Study the following diagram which shows the marginal revenue curve of a profit maximizing firm. Point X shows the output level where the firm will

• maximise total revenue.

• maximise profits.

• minimise costs.

• maximise output.

The diagram below shows the marginal cost, average revenue and average cost curves for a product. The profit maximizing level of output is at

• Q1

• Q2

• Q3

• Q4

The economist’s concept of “normal profit” is the level of return

• needed to persuade an entrepreneur to stay in his/her present line of business.

• made by an average firm in the industry.

• that results from production where average costs are at a minimum.

• when total revenues exceed total costs.

What level of output should the producer produce to maximise total revenue?

• 200 units

• 300 units

• 400 units

• 600 units

The diagram below shows the costs and revenue curves of a given firm. It may be concluded that price elasticity of demand is unitary at

• P1

• P2

• P3

• P4

The graph below shows the cost and revenue curves of a firm operating under perfect competition. It may be concluded that profits will be maximised at output

• Q1

• Q2

• Q3

• Q4

Refer to the diagram below. Which one of the following represents the marginal revenue for the firm of producing one

extra unit of output?

• 0

• 20

• 200

• 400

A small firm has been operating for one year. During the year they have:

-  Paid $40 000 in wages and salaries

- Paid $100 000 for raw materials

-  Used their own small factory, which could have been rented out for $90 000

-  Used $40 000 worth of electricity and services

- Received $450 000 in total revenue

 

In addition,

-  The owner of the firm has given up a job with another firm, where he would have been paid $70 000 per year

-  The owner has invested $60 000 of his own money into the business (the rate of interest during the year has been 5%.)

Calculate the 1. implicit costs, 2. explicit costs, and 3. calculate the profits/losses made by the firm from the point of view of an economist