Exam 5: The Behavior of Firms

Marginal Cost of Production The following questions refer to the following table which shows a firm's marginal cost of production. -Refer to Marginal Cost of Production.Suppose the firm's fixed costs increase to $100,and demand for the firm's product remains horizontal at a price of $24 per unit.What is the firm's maximum profit?

As increasing amounts of a good are produced,the marginal cost of production tends to

Higher insurance costs would cause a delivery firm to raise the price it charges.

Demand and Total Cost of Production The following questions refer to the following tables which show the demand for a firm's product and the firm's total cost of production. -Refer to Demand and Total Cost of Production.According to the equimarginal principle,how many units should the firm produce in order to maximize its profit?

Describe the effect that a surplus of tobacco will have on a cigarette producer's pricing and production decisions.

Marginal Revenue measures the slope of the Demand curve.

Profits will be positive as long as marginal revenue is greater than marginal cost.

Which of the following will result in a firm increasing its level of production?

The Marginal Benefit of consuming an additional unit of a good tends to increase as the number of units consumed increases.

A firm is considering entering a market where demand for its product is Q = 100 - P.This demand function implies that the firm's marginal revenue function is MR = 100 - 2Q.The firm's total cost of producing the product for that market is TC = 500 + 10Q + Q² which indicates that its marginal cost function is MC = 10 + Q.Indicate whether or not the firm should enter the market by calculating the firm's profit (Hint: to find the price that the firm should charge,take the profit maximizing quantity and plug it into the demand equation).Describe how your previous answer would change if the firm's total cost function became TC = 1000 + 10Q + Q².

Consider a firm that produces peanut butter.An increase in the price of peanuts will cause the firm to lower its output because

All cost increases are passed on to a firm's customers in the form of higher prices.

Economists attempt to understand firm behavior by making the generalization that firms act to maximize growth.

If a firms fixed costs increase from $2,000 to $3,000,then its marginal cost is $1,000.

Suppose the government increases the annual cost of the liquor permit that a tavern needs to serve alcohol.What effect will this increased cost have on the tavern's production and pricing decisions?

A firm's total cost schedule and the demand for its product are summarized in the table below.

Demand and Total Cost of Production The following questions refer to the following tables which show the demand for a firm's product and the firm's total cost of production. -Refer to Demand and Total Cost of Production.The profit from selling three units would be

A firm's revenue can be calculated from its demand curve using the formula "price times quantity."

If a firm's marginal cost exceeds its marginal revenue,then

Marginal cost is defined as