Chapter 7 : Profit Maximisation | Multiple Choice Questions [1 Mark each]
1. The first order condition of profit maximisation is :
(a) AR = MR
(b) MR = MC
(c) AR = AC
(d) AR = MC
2. __________ profit is earned when total revenue is equal to total cost.
(a) Zero
(b) Normal
(c) Positive
(d) Negative
3. The minimum point of the AVC curve is known as _____________.
(a) break-even point
(b) shut-down point
(c) long run equilibrium point
(d) point of minimum loss.
4. The minimum point of ___________ curve is called the break-even point.
(a) AC
(b) AVC
(c) MC
(d) TC
5. When MR > MC, total profit ___________ as the output level increases.
(a) decreases
(b) increases
(c) remains the same
(d) is maximum
6. When MR < MC and production increases, total profit
(a) decreases
(b) increases
(c) remains the same
(d) will be maximum
7. In the traditional theory about the objective of the firm it is assumed that the objective of the firm is
(a) to maximise production
(b) to maximise sales
(c) to maximise profit
(d) none of a, b and c
8. If the firm takes the price as given, it will continue production even if it is losing when
(a) P < AVC
(b) AC < P < AVC
(c) AC > P > AVC
(d) P > AC
9. A price-taking firm earns normal profit when
(a) P > AC
(b) P = AC
(c) P < AC
(d) P > AC
10. Which of the following is not an assumption of the profit maximisation theory?
(a) The firm is owned by a single individual
(b) The firm knows its demand and cost with certainty
(c) There are no costs other than production cost
(d) The firm operates in an uncertain world
11. The difference between total revenue and total cost is called
(a) gross profit
(b) net profit
(c) normal profit
(d) none of these
12. The difference between gross profit and cost of factors owned by the entrepreneur is called
(a) total profit
(b) net profit
(c) normal profit
(d) contractual cost
13. Which of the following statements is not applicable for profit?
(a) Profit is residual income
(b) Profit is not fixed by contract
(c) Profit can be zero or negative
(d) Profit cannot change suddenly
14. The sufficient condition for profit maximisation is :
(a) MC curve cuts MR curve from above
(b) MC curve cuts MR curve from below
(c) slope of MR = slope of MC
(d) slope of MR > slope of MC
15. The firm will stop production when
(a) total revenue < total variable cost
(b) total loss > total fixed cost
(c) both a and b
(d) none of a and b
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