Revenue, Profit and Firm Objectives: TR, AR, MR, Normal Profit, Supernormal Profit, Losses, Profit Maximisation, Revenue Maximisation, Sales Maximisation, Satisficing

1. Total revenue is calculated as

A price × quantity sold
B total cost – total profit
C marginal revenue × average cost
D price / quantity sold

2. Average revenue is

A total revenue / output sold
B total cost / output sold
C total profit / output sold
D marginal revenue / output sold

3. Marginal revenue is

A total revenue divided by output
B extra revenue from selling one more unit
C price multiplied by total cost
D average cost minus price

4. If a firm sells 100 units at $8 each, total revenue is

A $80
B $108
C $800
D $8000

5. If total revenue is $6000 and output sold is 300 units, average revenue is

A $20
B $300
C $5700
D $6300

6. If total revenue rises from $1000 to $1180 when output rises from 50 to 60 units, marginal revenue per unit is

A $10
B $18
C $30
D $180

7. In perfect competition, average revenue is equal to

A market price
B total cost
C marginal cost only
D fixed cost

8. In perfect competition, marginal revenue is equal to

A price
B average cost only
C total revenue
D total profit

9. For a price-taking firm, which relationship is correct?

A P = AR = MR
B P > AR > MR
C MR > P > AR
D AR = AC = TC

10. For a firm facing a downward-sloping demand curve, marginal revenue is usually

A above average revenue
B below average revenue
C equal to average revenue at all outputs
D equal to total revenue

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A firm lowers price to sell more units. Why is marginal revenue below average revenue?

A because all units must usually be sold at the lower price
B because fixed cost rises
C because marginal cost is zero
D because average revenue is always negative

12. If demand is price elastic, a fall in price will cause total revenue to

A rise
B fall
C stay constant
D become zero

13. If demand is price inelastic, a fall in price will cause total revenue to

A rise
B fall
C stay constant
D become infinite

14. If demand is unit price elastic, a change in price will cause total revenue to

A rise
B fall
C remain unchanged
D become negative

15. Total revenue is maximised where

A marginal revenue = 0
B marginal revenue = marginal cost
C average cost is minimised
D price = zero

16. Profit is calculated as

A total revenue – total cost
B total cost – total revenue
C total revenue / output
D total cost / output

17. Normal profit is

A the minimum profit needed to keep a firm in its current use of resources
B profit above opportunity cost
C total revenue minus variable cost only
D profit made only by monopolies

18. Supernormal profit is

A total revenue greater than total economic cost including normal profit
B total revenue equal to total cost
C profit below normal profit
D profit made only when price is zero

19. A firm earns normal profit when

A total revenue equals total cost including opportunity cost
B total revenue is greater than total cost by the maximum amount
C total revenue is zero
D average revenue is below average variable cost

20. A firm earns supernormal profit when

A AR > AC at the chosen output
B AR = AC at the chosen output
C AR < AC at the chosen output
D MC = 0 only

21. A firm makes a loss when

A AR < AC
B AR > AC
C TR > TC
D P > AVC always

22. If total revenue is $50000 and total cost including normal profit is $42000, economic profit is

A $8000 supernormal profit
B $8000 normal profit only
C $92000 loss
D $42000 supernormal profit

23. If total revenue is $35000 and total cost including normal profit is $35000, the firm earns

A loss
B normal profit
C supernormal profit
D abnormal loss only

24. If total revenue is $27000 and total cost including normal profit is $32000, the firm earns

A $5000 supernormal profit
B $5000 loss
C $59000 profit
D normal profit only

25. Profit maximisation occurs where

A MR = MC
B MR = 0
C AR = 0
D AC = maximum

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. The profit-maximising output is where

A the positive difference between TR and TC is greatest
B total revenue is greatest regardless of cost
C output is greatest regardless of profit
D average cost is always highest

27. If MR > MC, a profit-maximising firm should

A increase output
B reduce output
C keep output unchanged
D shut down immediately

28. If MR < MC, a profit-maximising firm should

A increase output
B reduce output
C maximise sales
D produce where MR = 0

29. If MR = MC and MC is rising, the firm is most likely

A maximising profit
B maximising revenue
C maximising output only
D making zero revenue

30. Revenue maximisation occurs where

A MR = 0
B MR = MC
C AR = AC
D MC = AC

31. Sales maximisation usually means producing

A the highest output possible subject to earning at least normal profit
B the output where TR is maximum only
C the output where AC is maximum
D the output where price is zero regardless of losses

32. Satisficing means

A aiming for satisfactory profit rather than maximum profit
B maximising profit at all costs
C producing where MR = 0
D minimising output

33. Which firm is most likely to satisfice?

A one where managers control decisions but owners want profit
B one with no separation between ownership and control
C a perfectly competitive firm with no market power and one owner-manager
D a firm legally banned from making profit

34. The principal-agent problem occurs when

A managers may pursue objectives different from owners’ objectives
B consumers have unlimited income
C firms always maximise profit
D government fixes all prices

35. Owners of a firm are most likely to prefer

A profit maximisation
B sales maximisation at any loss
C revenue maximisation with no regard for cost
D lower dividends always

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

36. Managers may prefer sales growth because

A higher sales may increase prestige, salaries and job security
B owners always ban expansion
C sales growth always maximises profit
D revenue maximisation means cost minimisation

37. A firm sells 10 units at $20 each. To sell 11 units, it cuts price to $19 for all units. What is marginal revenue of the 11th unit?

A $9
B $19
C $20
D $209

38. A firm sells 5 units at $30 each. To sell 6 units, it cuts price to $28 for all units. What is marginal revenue of the 6th unit?

A $18
B $28
C $30
D $168

39. A firm’s total revenue schedule is:

Output: 1, 2, 3, 4
TR: 50, 90, 120, 140

What is marginal revenue of the 4th unit?

A 20
B 30
C 40
D 140

40. A firm’s total revenue schedule is:

Output: 1, 2, 3, 4, 5
TR: 100, 180, 240, 280, 300

At which output is marginal revenue lowest but still positive?

A 2
B 3
C 4
D 5

41. A firm’s total revenue schedule is:

Output: 1, 2, 3, 4, 5, 6
TR: 40, 76, 108, 132, 140, 138

At which output is total revenue maximised?

A 4
B 5
C 6
D 2

42. Using the same schedule, what is marginal revenue of the 6th unit?

A -2
B 2
C 8
D 138

43. If marginal revenue becomes negative, total revenue

A rises faster
B rises slower
C reaches minimum
D falls

44. If marginal revenue is positive but falling, total revenue

A rises at a decreasing rate
B falls at an increasing rate
C remains constant
D becomes zero

45. If marginal revenue is zero, total revenue is

A maximised
B minimised
C negative
D equal to total cost always

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

46. A firm has TR = $1000 and TC = $800 at output 10. At output 11, TR = $1080 and TC = $900. What should a profit-maximising firm do?

A increase output to 11 because MR > MC
B stay at 10 because MR < MC
C increase output because TR rises
D reduce output because TC rises

47. A firm has TR = $2000 and TC = $1500 at output 20. At output 21, TR = $2050 and TC = $1570. What should a profit-maximising firm do?

A increase output because MR > MC
B not increase output because MR < MC
C increase output because TC rises
D maximise revenue where MR = 0

48. A firm’s data are:

Output: 1, 2, 3, 4
TR: 100, 180, 240, 280
TC: 80, 150, 230, 330

Which output gives maximum profit?

A 1
B 2
C 3
D 4

49. A firm’s data are:

Output: 1, 2, 3, 4, 5
TR: 60, 110, 150, 180, 200
TC: 70, 100, 130, 170, 220

Which objective would choose output 5?

A profit maximisation
B sales maximisation even if losses are accepted
C revenue maximisation
D productive efficiency

50. Which chain is most accurate?

A profit maximisation → MR = MC → output chosen where additional revenue equals additional cost
B revenue maximisation → MR = MC → profit is automatically maximised
C sales maximisation → MR = 0 → output always lowest
D satisficing → maximum possible profit → no principal-agent problem

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. Answer: A

A correct: total revenue = price × quantity sold.
B wrong: total cost – total profit does not define revenue.
C wrong: marginal revenue × average cost has no revenue formula meaning.
D wrong: price / quantity is not total revenue.

2. Answer: A

A correct: average revenue = total revenue / output sold.
B wrong: total cost / output gives average cost.
C wrong: total profit / output gives profit per unit.
D wrong: marginal revenue / output is not average revenue.

3. Answer: B

A wrong: total revenue divided by output is average revenue.
B correct: marginal revenue is extra revenue from selling one more unit.
C wrong: price × total cost is meaningless here.
D wrong: average cost minus price is not MR.

4. Answer: C

A wrong: $80 is too low.
B wrong: $108 adds price and quantity incorrectly.
C correct: TR = 100 × $8 = $800.
D wrong: $8000 multiplies by an extra 10.

5. Answer: A

A correct: AR = TR / output = 6000 / 300 = $20.
B wrong: $300 is output, not AR.
C wrong: $5700 subtracts output from TR.
D wrong: $6300 adds output to TR.

6. Answer: B

A wrong: $10 is too low.
B correct: MR per unit = change in TR / change in output = 180 / 10 = $18.
C wrong: $30 is not supported.
D wrong: $180 is total extra revenue, not per unit.

7. Answer: A

A correct: in perfect competition, AR equals market price because each unit is sold at the same price.
B wrong: AR is revenue per unit, not cost.
C wrong: AR equals MR and price, not MC only.
D wrong: fixed cost is unrelated.

8. Answer: A

A correct: a perfectly competitive firm is a price taker, so MR = price.
B wrong: MR does not equal AC only.
C wrong: total revenue is total, MR is extra revenue.
D wrong: profit is TR – TC.

9. Answer: A

A correct: for a price taker, P = AR = MR.
B wrong: MR is not below AR in perfect competition.
C wrong: MR is not above price.
D wrong: TC is total cost and cannot equal AR like this.

10. Answer: B

A wrong: MR is below AR when price must be lowered to sell extra units.
B correct: for a downward-sloping demand curve, selling more usually requires cutting price on all units, so MR < AR.
C wrong: MR = AR only under perfect competition.
D wrong: MR is not total revenue.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. Answer: A

A correct: to sell more, price must fall on all units, so extra revenue from the last unit is less than the new price/AR.
B wrong: fixed cost does not explain MR below AR.
C wrong: marginal cost is irrelevant to the MR and AR relationship.
D wrong: AR is not always negative.

12. Answer: A

A correct: if demand is price elastic, the percentage rise in quantity is greater than the percentage fall in price, so TR rises.
B wrong: TR falls after a price fall only when demand is inelastic.
C wrong: TR stays constant only with unit elastic demand.
D wrong: TR does not become zero.

13. Answer: B

A wrong: TR rises after a price fall only when demand is elastic.
B correct: if demand is inelastic, quantity rises proportionately less than price falls, so TR falls.
C wrong: TR stays constant only when demand is unit elastic.
D wrong: TR does not become infinite.

14. Answer: C

A wrong: TR does not rise when PED = 1.
B wrong: TR does not fall when PED = 1.
C correct: unit elastic demand means price and quantity change proportionately in opposite directions, leaving TR unchanged.
D wrong: TR does not become negative.

15. Answer: A

A correct: total revenue is maximised where marginal revenue is zero.
B wrong: MR = MC gives profit maximisation.
C wrong: minimum AC gives productive efficiency.
D wrong: price zero usually gives no revenue.

16. Answer: A

A correct: profit = total revenue – total cost.
B wrong: total cost – total revenue gives loss if positive.
C wrong: total revenue / output gives average revenue.
D wrong: total cost / output gives average cost.

17. Answer: A

A correct: normal profit is the minimum return needed to keep resources in their current use.
B wrong: profit above opportunity cost is supernormal profit.
C wrong: TR – variable cost gives contribution toward fixed costs/profit, not normal profit.
D wrong: normal profit can occur in any market structure.

18. Answer: A

A correct: supernormal profit exists when revenue exceeds all economic costs, including normal profit.
B wrong: TR = TC including normal profit means normal profit only.
C wrong: below normal profit means loss in economic terms.
D wrong: price being zero is not relevant.

19. Answer: A

A correct: normal profit occurs when TR equals total economic cost including opportunity cost.
B wrong: TR greater than TC means supernormal profit.
C wrong: zero revenue is not normal profit unless total cost is also zero, unrealistic.
D wrong: AR below AVC suggests shutdown problem/loss.

20. Answer: A

A correct: if AR > AC, revenue per unit exceeds cost per unit, so the firm earns supernormal profit.
B wrong: AR = AC means normal profit.
C wrong: AR < AC means loss.
D wrong: MC = 0 alone does not determine profit.

21. Answer: A

A correct: if average revenue is below average cost, the firm loses money per unit.
B wrong: AR > AC means supernormal profit.
C wrong: TR > TC means profit.
D wrong: P > AVC may mean the firm covers variable costs, but it can still make a loss if P < AC.

22. Answer: A

A correct: economic profit = 50000 – 42000 = $8000 supernormal profit.
B wrong: normal profit is already included in total cost.
C wrong: $92000 adds TR and TC.
D wrong: $42000 is total cost, not profit.

23. Answer: B

A wrong: there is no loss because TR = TC.
B correct: when TR equals total cost including normal profit, the firm earns normal profit.
C wrong: supernormal profit requires TR > TC.
D wrong: abnormal loss requires TR < TC.

24. Answer: B

A wrong: TR is lower than TC, so no supernormal profit.
B correct: loss = 32000 – 27000 = $5000.
C wrong: $59000 adds TR and TC.
D wrong: normal profit occurs only when TR = TC including normal profit.

25. Answer: A

A correct: profit maximisation occurs where MR = MC, with MC rising.
B wrong: MR = 0 gives revenue maximisation.
C wrong: AR = 0 is not a firm objective rule.
D wrong: maximum AC is not profit maximisation.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. Answer: A

A correct: profit is maximised where the gap between TR and TC is greatest.
B wrong: maximum revenue may occur at an output where costs reduce profit.
C wrong: greatest output may create losses.
D wrong: highest average cost is not desirable.

27. Answer: A

A correct: if MR > MC, the extra unit adds more revenue than cost, so output should increase.
B wrong: reducing output sacrifices profitable units.
C wrong: unchanged output misses extra profit.
D wrong: shutdown is not justified.

28. Answer: B

A wrong: producing more would add units costing more than they earn.
B correct: if MR < MC, output should be reduced.
C wrong: sales maximisation ignores the profit-maximising rule.
D wrong: MR = 0 gives revenue maximisation, not profit maximisation.

29. Answer: A

A correct: MR = MC with rising MC is the profit-maximising condition.
B wrong: revenue maximisation occurs where MR = 0.
C wrong: maximum output is sales maximisation, not MR = MC.
D wrong: MR = MC does not imply zero revenue.

30. Answer: A

A correct: revenue maximisation occurs where MR = 0 because total revenue stops rising.
B wrong: MR = MC gives profit maximisation.
C wrong: AR = AC gives normal profit/break-even.
D wrong: MC = AC gives minimum average cost.

31. Answer: A

A correct: sales maximisation usually means the largest output possible while earning at least normal profit.
B wrong: TR maximum is revenue maximisation.
C wrong: maximum AC is not an objective.
D wrong: a firm usually cannot sell at any loss forever unless the question states losses are accepted.

32. Answer: A

A correct: satisficing means accepting a satisfactory profit level rather than maximising profit.
B wrong: that is profit maximisation.
C wrong: MR = 0 is revenue maximisation.
D wrong: satisficing does not mean minimising output.

33. Answer: A

A correct: satisficing is likely when managers control decisions and may pursue their own objectives while keeping owners satisfied.
B wrong: no separation of ownership and control reduces principal-agent issues.
C wrong: an owner-managed price taker has little scope to satisfice.
D wrong: being banned from profit is not satisficing.

34. Answer: A

A correct: the principal-agent problem occurs when managers/agents pursue aims different from owners/principals.
B wrong: consumer income is irrelevant.
C wrong: if firms always maximised profit, there would be no principal-agent conflict.
D wrong: government price fixing is intervention, not principal-agent problem.

35. Answer: A

A correct: owners/shareholders usually prefer profit maximisation because it raises dividends and firm value.
B wrong: sales maximisation at losses harms owners.
C wrong: revenue maximisation may reduce profit if costs are high.
D wrong: owners usually prefer higher, not lower, dividends.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

36. Answer: A

A correct: managers may gain prestige, higher pay and job security from managing a larger firm.
B wrong: owners do not always ban expansion.
C wrong: sales growth does not always maximise profit.
D wrong: revenue maximisation does not mean cost minimisation.

37. Answer: A

A correct: TR at 10 units = 10 × $20 = $200. TR at 11 units = 11 × $19 = $209. MR = $209 – $200 = $9.
B wrong: $19 is the new price/AR, not MR.
C wrong: $20 is old price.
D wrong: $209 is new total revenue.

38. Answer: A

A correct: TR at 5 units = 5 × $30 = $150. TR at 6 units = 6 × $28 = $168. MR = $18.
B wrong: $28 is the new price/AR.
C wrong: $30 is old price.
D wrong: $168 is total revenue.

39. Answer: A

A correct: MR of 4th unit = TR4 – TR3 = 140 – 120 = 20.
B wrong: 30 is MR of the 3rd unit.
C wrong: 40 is MR of the 2nd unit.
D wrong: 140 is total revenue.

40. Answer: D

A wrong: MR at output 2 = 180 – 100 = 80.
B wrong: MR at output 3 = 240 – 180 = 60.
C wrong: MR at output 4 = 280 – 240 = 40.
D correct: MR at output 5 = 300 – 280 = 20, the lowest positive MR.

41. Answer: B

A wrong: TR at output 4 is 132.
B correct: TR is highest at output 5, where TR = 140.
C wrong: TR falls to 138 at output 6.
D wrong: output 2 has TR of 76.

42. Answer: A

A correct: MR of 6th unit = 138 – 140 = -2.
B wrong: positive 2 uses the sign wrongly.
C wrong: 8 is MR of the 5th unit.
D wrong: 138 is total revenue.

43. Answer: D

A wrong: TR rises faster when MR is positive and increasing.
B wrong: TR rises slower when MR is positive but falling.
C wrong: TR reaches maximum when MR = 0.
D correct: negative MR means selling an extra unit reduces total revenue.

44. Answer: A

A correct: positive MR means TR rises; falling MR means it rises by smaller additions.
B wrong: TR is not falling while MR is positive.
C wrong: TR is constant only when MR = 0.
D wrong: TR does not become zero.

45. Answer: A

A correct: when MR = 0, total revenue is maximised.
B wrong: minimum TR is not the rule.
C wrong: TR is not negative.
D wrong: TR does not necessarily equal TC.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

46. Answer: B

A wrong: MR = 1080 – 1000 = 80, while MC = 900 – 800 = 100, so MR < MC.
B correct: the 11th unit reduces profit because extra cost exceeds extra revenue, so stay at 10.
C wrong: TR rising alone is not enough; cost rises more.
D wrong: TC rising alone is not enough; compare MR and MC.

47. Answer: B

A wrong: MR = 2050 – 2000 = 50, while MC = 1570 – 1500 = 70, so MR < MC.
B correct: the extra unit reduces profit, so the firm should not increase output.
C wrong: TC rising is not the decision rule.
D wrong: revenue maximisation is a different objective.

48. Answer: B

A wrong: profit at output 1 = 100 – 80 = 20.
B correct: profit at output 2 = 180 – 150 = 30, the maximum.
C wrong: profit at output 3 = 240 – 230 = 10.
D wrong: profit at output 4 = 280 – 330 = -50.

49. Answer: B and C

A wrong: profit is highest at output 3 or 4? Profit values are -10, 10, 20, 10, -20, so profit maximisation chooses output 3, not 5.
B correct: sales maximisation accepting losses would choose the highest output, output 5.
C correct: revenue maximisation also chooses output 5 because TR is highest at 200.
D wrong: productive efficiency cannot be judged without cost curve minimum data.

50. Answer: A

A correct: profit maximisation means choosing output where the extra revenue from the last unit equals the extra cost of producing it.
B wrong: revenue maximisation occurs where MR = 0, not MR = MC.
C wrong: sales maximisation means high output, not necessarily MR = 0.
D wrong: satisficing means satisfactory profit, not maximum profit, and it may arise due to principal-agent problems.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.