Question 1

Economists and accountants have very different definitions of profit.

Accepted Answer

A) True 
 B)False

Question 2

The federal government, in order to fund expanded health care, imposes a lump-sum tax on all business property.Profit-maximizing firms that stay in business will respond by

Accepted Answer

A) raising prices to pay the tax. 
B) cutting output to reduce costs. 
C) lowering prices to stimulate demand. 
D) doing nothing. 
A) raising prices to pay the tax. 
B) cutting output to reduce costs. 
C) lowering prices to stimulate demand. 
D) doing nothing.

Question 3

A firm's fixed cost

Accepted Answer

A) does not vary with output. 
B) does not change between the short run and the long run. 
C) is generally a higher percentage of its total cost at high output quantities than at low output quantities. 
D) All of the above are true. 
A) does not vary with output. 
B) does not change between the short run and the long run. 
C) is generally a higher percentage of its total cost at high output quantities than at low output quantities. 
D) All of the above are true.

Question 4

Marginal profit is the addition to a firm's total profit from a

Accepted Answer

A) $1 change in its price. 
B) one-unit change in its output. 
C) reduction in total cost. 
D) reduction in marginal cost. 
A) $1 change in its price. 
B) one-unit change in its output. 
C) reduction in total cost. 
D) reduction in marginal cost.

Question 5

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest) in a new real estate business.Her accountant predicted a $60,000 revenue the first year.Her husband, an economist, forecast her profit to be

Accepted Answer

A) $10,000. 
B) $28,000. 
C) $32,000. 
D) $60,000. 
A) $10,000. 
B) $28,000. 
C) $32,000. 
D) $60,000.

Question 6

Average cost equals

Accepted Answer

A) change in total cost/change in quantity. 
B) total cost/quantity. 
C) total cost − total variable cost. 
D) total cost − total fixed cost. 
A) change in total cost/change in quantity. 
B) total cost/quantity. 
C) total cost − total variable cost. 
D) total cost − total fixed cost.

Question 7

Optimal decisions are made on the basis of

Accepted Answer

A) rate of growth in total profit. 
B) average cost and average revenue figures. 
C) impact on market share. 
D) marginal cost and marginal revenue figures. 
A) rate of growth in total profit. 
B) average cost and average revenue figures. 
C) impact on market share. 
D) marginal cost and marginal revenue figures.

Question 8

The phone network says it loses money on local calls, because the $20 average monthly bill does not cover its average cost of $30.It estimates that $18 of costs are directly related to local service, with $12 the share from overall expenses (overhead).Why would the phone network be willing to operate if it is losing money?

Accepted Answer

The phone company would save $18 in cost

Question 9

In reality, decisions made by firms may not always produce maximum total profit because some executives

Accepted Answer

A) are more motivated by altruism. 
B) are more interested in market share than profits. 
C) may push research and development to the point that profits decline. 
D) All of the above are correct. 
A) are more motivated by altruism. 
B) are more interested in market share than profits. 
C) may push research and development to the point that profits decline. 
D) All of the above are correct.

Question 10

Marginal profit equals the difference between marginal revenue and average cost.

Accepted Answer

A) True 
 B)False

Question 11

The rule of equating marginal benefit with marginal cost is proper for economics, but it does not describe the way in which people make non-economic decisions.

Accepted Answer

A) True 
 B)False

Question 12

Any change in a firm's fixed costs will change its profit-maximizing level of output.

Accepted Answer

A) True 
 B)False

Question 13

Most business people calculate marginal cost and marginal revenue to decide how much to produce.

Accepted Answer

A) True 
 B)False

Question 14

A firm that sells at a price below average cost is losing money.

Accepted Answer

A) True 
 B)False

Question 15

Marginal cost is defined by the slope of the total revenue curve.

Accepted Answer

A) True 
 B)False

Question 16

Price and quantity decisions made by a company have vital influences on

Accepted Answer

A) the firm's labor requirements. 
B) consumer response to the product. 
C) future success of the company. 
D) All of the above are correct. 
A) the firm's labor requirements. 
B) consumer response to the product. 
C) future success of the company. 
D) All of the above are correct.

Question 17

The typical total profit graphical presentation is shown as

Accepted Answer

A) a square. 
B) a rectangle. 
C) a hill, or mound. 
D) an S curve. 
A) a square. 
B) a rectangle. 
C) a hill, or mound. 
D) an S curve.

Question 18

A firm's total revenue is simply the price of its product multiplied by the quantity sold.

Accepted Answer

A) True 
 B)False

Question 19

Most consumers in stores use marginal analysis to make their buying decisions.

Accepted Answer

A) True 
 B)False

Question 20

If marginal cost of an additional unit of output is greater than average cost, then average cost will rise.

Accepted Answer

A) True 
 B)False

Exam 8: Output Price and Profit the Importance of Marginal Analysis

Economists and accountants have very different definitions of profit.

The federal government, in order to fund expanded health care, imposes a lump-sum tax on all business property.Profit-maximizing firms that stay in business will respond by

A firm's fixed cost

Marginal profit is the addition to a firm's total profit from a

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest) in a new real estate business.Her accountant predicted a $60,000 revenue the first year.Her husband, an economist, forecast her profit to be

Average cost equals

Optimal decisions are made on the basis of

In reality, decisions made by firms may not always produce maximum total profit because some executives

Marginal profit equals the difference between marginal revenue and average cost.

The rule of equating marginal benefit with marginal cost is proper for economics, but it does not describe the way in which people make non-economic decisions.

Any change in a firm's fixed costs will change its profit-maximizing level of output.

Most business people calculate marginal cost and marginal revenue to decide how much to produce.

A firm that sells at a price below average cost is losing money.

Marginal cost is defined by the slope of the total revenue curve.

Price and quantity decisions made by a company have vital influences on

The typical total profit graphical presentation is shown as

A firm's total revenue is simply the price of its product multiplied by the quantity sold.

Most consumers in stores use marginal analysis to make their buying decisions.

If marginal cost of an additional unit of output is greater than average cost, then average cost will rise.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand an Initial Look

Consumer Choice Individual and Market Demand

Demand and Elasticity

Production Inputs and Cost Building Blocks for Supply Analysis

Securities Business Finance and the Economy the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power Regulation and Antitrust

The Case for Free Markets the Price System

The Shortcomings of Free Markets

Externalities the Environment and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship the Human Inputs

Poverty Inequality and Discrimination

Is Us Economic Leadership Threatened

International Trade and Comparative Advantage

Filters