Question 1

What is the marginal revenue [MR] equation for a firm with the demand function P = a - bQ,where P = price and Q = quantity?

Accepted Answer

A) MR = b - Q 
B) MR = a - 2bQ 
C) MR = a + 2Q 
D) MR = 2Q 
E) MR = 2a + Q 
A) MR = b - Q 
B) MR = a - 2bQ 
C) MR = a + 2Q 
D) MR = 2Q 
E) MR = 2a + Q B

Question 2

War Game,Inc.produces games that simulate historical battles.The market is small but loyal,and War Game is the largest manufacturer.It is thinking about introducing a new game in honor of the sixtieth anniversary of the end of World War II.Based on historical data regarding sales,War Game management forecasts demand for this game to be P = 50 - 0.002Q,where Q denotes unit sales per year,and P denotes price in dollars.The cost of manufacturing (based on royalty payments to the designer of the game,and the costs of printing and distributing)is C = 140,000 + 10Q.
(a)If the goal of War Game is to maximize profit,calculate the optimal output and price.

Accepted Answer

The company's revenue equation is given by: revenue = price × quantity = 50Q - 0.002Q².To maximize revenue set marginal revenue [MR] = 0.Therefore,50 - 0.004Q = 0,implying optimal output [Q*] = 12,500 units.In turn,P = 50 - (0.002)(12,500)= $25 per unit of the game.

Question 3

Which of the following correctly defines marginal cost?

Accepted Answer

A) Marginal cost is the addition made to fixed cost when an extra unit is produced. 
B) Marginal cost is the additional cost of producing an extra unit of output. 
C) Marginal cost is the additional cost of increasing the scale of production in the long run. 
D) Marginal cost is the difference between price and marginal revenue for the last unit sold. 
E) Marginal cost is the same as the firm's variable cost at all levels of output. 
A) Marginal cost is the addition made to fixed cost when an extra unit is produced. 
B) Marginal cost is the additional cost of producing an extra unit of output. 
C) Marginal cost is the additional cost of increasing the scale of production in the long run. 
D) Marginal cost is the difference between price and marginal revenue for the last unit sold. 
E) Marginal cost is the same as the firm's variable cost at all levels of output. B

Question 4

Assume that Turbo is a firm that produces two kinds of flash-memory drives.Its deluxe model has the inverse demand equation: PD = 70 - 0.05QD,where QD is the number of units sold per week.For its economy model,the price equation is: PE = 30 - 0.05QE.Turbo's marginal cost is $10 per unit for either drive,and it produces both on a single assembly line that has a maximum capacity of 875 drives per week.
(a)Determine the profit-maximizing outputs and prices of the drives.

Accepted Answer

Given the increase in demand for the eco

Question 5

Which of the following correctly defines marginal revenue?

Accepted Answer

A) Marginal revenue is the price at which the firm sells the last unit of the good. 
B) Marginal revenue is the change in revenue from a unit increase in the price of the good. 
C) Marginal revenue is the additional revenue from a unit increase in output and sales. 
D) Marginal revenue is the additional revenue earned from an increase in demand for the good. 
E) Marginal revenue is the difference between price and marginal cost for the last unit sold. 
A) Marginal revenue is the price at which the firm sells the last unit of the good. 
B) Marginal revenue is the change in revenue from a unit increase in the price of the good. 
C) Marginal revenue is the additional revenue from a unit increase in output and sales. 
D) Marginal revenue is the additional revenue earned from an increase in demand for the good. 
E) Marginal revenue is the difference between price and marginal cost for the last unit sold.

Question 6

To maximize profit,the firm should set output at the level where:

Accepted Answer

A) the average cost per unit is minimized. 
B) average revenue just equals average cost. 
C) marginal cost equals zero. 
D) marginal revenue is equal to marginal cost. 
E) marginal revenue equals zero. 
A) the average cost per unit is minimized. 
B) average revenue just equals average cost. 
C) marginal cost equals zero. 
D) marginal revenue is equal to marginal cost. 
E) marginal revenue equals zero.

Question 7

A firm negotiates a new labor contract with a higher average hourly wage.What is the most likely effect of the higher wage on the firm's price and output?

Accepted Answer

A) Both price and output will not be affected. 
B) Price will increase but output will not change. 
C) Both price and output will increase. 
D) Price will not change but output will decrease. 
E) Price will increase but output will decrease. 
A) Both price and output will not be affected. 
B) Price will increase but output will not change. 
C) Both price and output will increase. 
D) Price will not change but output will decrease. 
E) Price will increase but output will decrease.

Question 8

Assume that a firm is producing at its profit-maximizing level of output.A decrease in the price of raw materials used in production is most likely to lead to:

Accepted Answer

A) an increase in quantity produced at an unchanged price. 
B) a fall in the price of the good and an increase in the quantity produced. 
C) a fall in both the price of the good and the quantity produced. 
D) an increase in both the price of the good and the quantity produced. 
E) a fall in the quantity produced of the good at an unchanged price. 
A) an increase in quantity produced at an unchanged price. 
B) a fall in the price of the good and an increase in the quantity produced. 
C) a fall in both the price of the good and the quantity produced. 
D) an increase in both the price of the good and the quantity produced. 
E) a fall in the quantity produced of the good at an unchanged price.

Question 9

Due to an increase in the price of a competitor's product,the demand for a firm's product increases sharply.How is this most likely to affect the firm's marginal revenue and marginal cost?

Accepted Answer

A) Marginal revenue will increase but marginal cost will decrease. 
B) Both marginal revenue and marginal cost will not be affected. 
C) Both marginal revenue and marginal cost will increase. 
D) Marginal revenue will not change but marginal cost will increase. 
E) Marginal revenue will increase but marginal cost will not change. 
A) Marginal revenue will increase but marginal cost will decrease. 
B) Both marginal revenue and marginal cost will not be affected. 
C) Both marginal revenue and marginal cost will increase. 
D) Marginal revenue will not change but marginal cost will increase. 
E) Marginal revenue will increase but marginal cost will not change.

Question 10

According to the model of the firm,the management's main goal is to:

Accepted Answer

A) increase revenue from sales. 
B) maximize profit. 
C) maximize its market share. 
D) minimize its variable cost per unit. 
E) maintain a steady and predictable growth in earnings. 
A) increase revenue from sales. 
B) maximize profit. 
C) maximize its market share. 
D) minimize its variable cost per unit. 
E) maintain a steady and predictable growth in earnings.

Question 11

How will an increase in price affect the quantity of output sold by a firm? What are the reasons for this change?

Accepted Answer

According to the law of demand,a change

Question 12

A firm faces the demand curve,P = 80 - 3Q,and has the cost equation: C = 200 + 20Q,where P = price,C = total cost,and Q = quantity.
(a)Find the optimal quantity and price for the firm.

Accepted Answer

According to the new price equation,P =

Question 13

The current manager of a small bicycle shop estimates the demand curve for a child's starter bike to be: P = 80 - 2Q.Costs are given by: C = 200 + 20Q.The former owner of the shop (now retired)urges the manager to keep prices low so as to increase sales and maximize revenue (The shop pays the former owner 5% of each dollar of earned revenue).If current management follows the former owner's goal,what sales output and price should it set? What strategy can be recommended for the management to maximize profits?

Accepted Answer

If the manager obeys the wishes of the f

Question 14

According to the law of demand,if a firm reduces the price of its good:

Accepted Answer

A) consumers in the market will demand more units of the good. 
B) some consumers will exit the market. 
C) consumers will demand fewer units than before the price cut. 
D) the quantity of goods produced and sold by the firm will decline. 
E) competing firms will increase prices. 
A) consumers in the market will demand more units of the good. 
B) some consumers will exit the market. 
C) consumers will demand fewer units than before the price cut. 
D) the quantity of goods produced and sold by the firm will decline. 
E) competing firms will increase prices.

Question 15

Given that a firm's inverse demand function is P = 100 - 5Q and total cost is given by C = 550 + 10Q,what is the firm's profit-maximizing level of output?

Accepted Answer

A) 10 units 
B) 15 units 
C) 9 units 
D) 8 units 
E) 5 units 
A) 10 units 
B) 15 units 
C) 9 units 
D) 8 units 
E) 5 units

Question 16

Suppose that a firm sells in a competitive market at a fixed price of $12 per unit.The firm's cost function is: C = 200 + 4Q,where C = total cost and Q = quantity.In this case,how can the firm use marginal revenue [MR] and marginal cost [MC] approach to maximize its profit?

Accepted Answer

Here,total revenue = 12Q so that MR = $1

Question 17

The demand for a product is given by P = 1,750 - 25Q,where P = price and Q = quantity.If the firm wishes to sell 50 units,each unit should be priced at _____.

Accepted Answer

A) $500 
B) $400 
C) $300 
D) $200 
E) $100 
A) $500 
B) $400 
C) $300 
D) $200 
E) $100

Question 18

Are there any types of goods or situations where the law of demand does not hold? Explain.

Accepted Answer

The law of demand states that all other

Question 19

Suppose the inverse demand curve of a firm is given by the equation: P = 2,500 - 10Q.Compute the firm's total revenue and marginal revenue,and determine the quantity that maximizes total revenue.

Accepted Answer

Revenue = price × quantity = 2

Question 20

(a)How will an increase in the overhead cost affect the demand and supply curves for a firm? Will an increase in the price of a raw material used in production have the same effect?

Accepted Answer

A depreciation of the domestic currency

What is the marginal revenue [MR] equation for a firm with the demand function P = a - bQ,where P = price and Q = quantity?

Which of the following correctly defines marginal cost?

Which of the following correctly defines marginal revenue?

To maximize profit,the firm should set output at the level where:

A firm negotiates a new labor contract with a higher average hourly wage.What is the most likely effect of the higher wage on the firm's price and output?

Assume that a firm is producing at its profit-maximizing level of output.A decrease in the price of raw materials used in production is most likely to lead to:

Due to an increase in the price of a competitor's product,the demand for a firm's product increases sharply.How is this most likely to affect the firm's marginal revenue and marginal cost?

According to the model of the firm,the management's main goal is to:

How will an increase in price affect the quantity of output sold by a firm? What are the reasons for this change?

A firm faces the demand curve,P = 80 - 3Q,and has the cost equation: C = 200 + 20Q,where P = price,C = total cost,and Q = quantity. (a)Find the optimal quantity and price for the firm.

According to the law of demand,if a firm reduces the price of its good:

Given that a firm's inverse demand function is P = 100 - 5Q and total cost is given by C = 550 + 10Q,what is the firm's profit-maximizing level of output?

Suppose that a firm sells in a competitive market at a fixed price of $12 per unit.The firm's cost function is: C = 200 + 4Q,where C = total cost and Q = quantity.In this case,how can the firm use marginal revenue [MR] and marginal cost [MC] approach to maximize its profit?

The demand for a product is given by P = 1,750 - 25Q,where P = price and Q = quantity.If the firm wishes to sell 50 units,each unit should be priced at _____.

Are there any types of goods or situations where the law of demand does not hold? Explain.

Suppose the inverse demand curve of a firm is given by the equation: P = 2,500 - 10Q.Compute the firm's total revenue and marginal revenue,and determine the quantity that maximizes total revenue.

(a)How will an increase in the overhead cost affect the demand and supply curves for a firm? Will an increase in the price of a raw material used in production have the same effect?

Introduction to Economic Decision Making

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters

Exam 2: Optimal Decisions Using Marginal Analysis

What is the marginal revenue [MR] equation for a firm with the demand function P = a - bQ,where P = price and Q = quantity?

Which of the following correctly defines marginal cost?

Which of the following correctly defines marginal revenue?

To maximize profit,the firm should set output at the level where:

A firm negotiates a new labor contract with a higher average hourly wage.What is the most likely effect of the higher wage on the firm's price and output?

Assume that a firm is producing at its profit-maximizing level of output.A decrease in the price of raw materials used in production is most likely to lead to:

Due to an increase in the price of a competitor's product,the demand for a firm's product increases sharply.How is this most likely to affect the firm's marginal revenue and marginal cost?

According to the model of the firm,the management's main goal is to:

How will an increase in price affect the quantity of output sold by a firm? What are the reasons for this change?

A firm faces the demand curve,P = 80 - 3Q,and has the cost equation: C = 200 + 20Q,where P = price,C = total cost,and Q = quantity. (a)Find the optimal quantity and price for the firm.

According to the law of demand,if a firm reduces the price of its good:

Given that a firm's inverse demand function is P = 100 - 5Q and total cost is given by C = 550 + 10Q,what is the firm's profit-maximizing level of output?

Suppose that a firm sells in a competitive market at a fixed price of $12 per unit.The firm's cost function is: C = 200 + 4Q,where C = total cost and Q = quantity.In this case,how can the firm use marginal revenue [MR] and marginal cost [MC] approach to maximize its profit?

The demand for a product is given by P = 1,750 - 25Q,where P = price and Q = quantity.If the firm wishes to sell 50 units,each unit should be priced at _____.

Are there any types of goods or situations where the law of demand does not hold? Explain.

Suppose the inverse demand curve of a firm is given by the equation: P = 2,500 - 10Q.Compute the firm's total revenue and marginal revenue,and determine the quantity that maximizes total revenue.

(a)How will an increase in the overhead cost affect the demand and supply curves for a firm? Will an increase in the price of a raw material used in production have the same effect?

Introduction to Economic Decision Making

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters