Principles of Economics Exam
Questions with Answers
Profit - ✔✔The total revenue a firm receives from the sale of its product minus all costs--
explicit and implicit-- incurred in producing it
Profit Maximizing Firm - ✔✔A firm whose primary goal is to maximize the difference between
its total revenues and total costs
Perfectly competitive market - ✔✔A market in which no individual supplier has significant
influence on the market price of the product
Price taker - ✔✔a firm that has no influence over the price at which it sells its product
Imperfectly competitive firm - ✔✔A firm that has at least some control over the market price of
its product
Factor of production - ✔✔An input used in the production of a good or service
Short run - ✔✔A period of time sufficiently short that at least some of the firm's factors of
production are fixed
Long run - ✔✔A period of time of sufficient length that all the firm's factors of production are
variable
Law of diminishing returns - ✔✔A property of the relationship between the amount of a good
or service produced and the amount of a variable factor required to produce it. The law says
that when some factors of production are fixed, increased production of the good eventually
requires ever larger increases in the variable factor
Questions with Answers
Profit - ✔✔The total revenue a firm receives from the sale of its product minus all costs--
explicit and implicit-- incurred in producing it
Profit Maximizing Firm - ✔✔A firm whose primary goal is to maximize the difference between
its total revenues and total costs
Perfectly competitive market - ✔✔A market in which no individual supplier has significant
influence on the market price of the product
Price taker - ✔✔a firm that has no influence over the price at which it sells its product
Imperfectly competitive firm - ✔✔A firm that has at least some control over the market price of
its product
Factor of production - ✔✔An input used in the production of a good or service
Short run - ✔✔A period of time sufficiently short that at least some of the firm's factors of
production are fixed
Long run - ✔✔A period of time of sufficient length that all the firm's factors of production are
variable
Law of diminishing returns - ✔✔A property of the relationship between the amount of a good
or service produced and the amount of a variable factor required to produce it. The law says
that when some factors of production are fixed, increased production of the good eventually
requires ever larger increases in the variable factor
