1 If a producer who has no impact on prices is correctly pro

1. If a producer (who has no impact on prices) is correctly profit maximizing and making a profit, what
must be true about average vs marginal cost at the current quantity being produced?
A. Marginal cost must be higher than average total cost.
B. Marginal cost must be lower than average total cost.
C. Marginal cost must equal average total cost.
D. Marginal cost is increasing, but average variable cost is decreasing.
E. We can’t say anything about the relationship between marginal and average costs without more
information.

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2. Which one of the following equations demonstrates the relationship between producer surplus (PS)
and economic profit (PR)?
A. PS = PR – Fixed Costs
B. PS = PR + Fixed Costs
C. PS = PR
D. PR = PS + Variable Costs
E. PR = PS – Total Costs

Solution

1) the correct answer is option A. It states that marginal cost must be higher than average cost

2) the correct answer is option B. It states that PS = PR+ fixed cost