Question

1) If a competitive firm's marginal profit is positive at an output of 1000 units,

A) at 1000 units, MR = MC.

B) it should produce more than 1000 units.

C) it should produce less than 1000 units.

12) Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions?

A) No impact on the restaurant's decisions

B) Ronny will remain in business but will definitely produce less pizza.

C) Ronny will definitely shut down.

D) Ronny decision depends on the circumstances—if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.

13) Josh company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for $100 per thousand. Josh's total and marginal cost curves are: TC = 3,000,000 + 0.001Q2 MC = 0.002Q; where Q is measured in thousand box bundles per year. What is John's profit maximizing quantity (Q*)? What is Josh’s profit/ loss?

A) Q*= 50,000; Profit = 500,000 per year

B) Q*= 50,000; loss = 500,000 per year

C) Q*= 5,000; Profit = 100,000 per year

D) Q*= 5,000; loss = 100,000 per year

D) at 1000 units, MR < MC

Answer 1

1) option B is correct (MR > MC , more quantity can be produced to maximize profit )

12) No impact on restaurant's decisions (tax is a fixed cost per year, doesn't impact P or MC)

13) For profit maximization : P = MC

Q* = 100/0.002 = 50000

Profit = 100 x 50000 - 3000000 - 0.001 x 50000²

Loss = 500000

Option B is correct