Question 1

Total profit = Total revenue - Total cost (including opportunity cost).
Total profit defined in this way is called

Accepted Answer

A)  accounting profit. 
B)  economic profit. 
C)  absolute profit. 
D)  relative profit. 
A)  accounting profit. 
B)  economic profit. 
C)  absolute profit. 
D)  relative profit.

Question 2

Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.

Accepted Answer

A) True 
 B)False

Question 3

The addition to total revenue resulting from one more unit of output is called marginal revenue.

Accepted Answer

A) True 
 B)False

Question 4

Total cost equals average cost multiplied by the quantity of output.

Accepted Answer

A) True 
 B)False

Question 5

When a firm's fixed cost rises, its total profit curve shifts

Accepted Answer

A)  up at every output level. 
B)  down at every output level. 
C)  left at every profit level. 
D)  right at every profit level. 
A)  up at every output level. 
B)  down at every output level. 
C)  left at every profit level. 
D)  right at every profit level.

Question 6

Table 8-1
 $ \begin{array}{lcccccr}\text { Output (units) } & 0 & 1 & 2 & 3 & 4 & 5 \ \text { Total Revenue (\$) } & 0 & 9 & 16 & 21 & 27 & 31 \ \text { Total Cost }(\$) & 10 & 12 & 15 & 19 & 26 & 35\end{array} $
-The firm described in Table 8-1 has a fixed cost of ____ at its optimal level of output.

Accepted Answer

A)  2 
B)  6 
C)  10 
D)  26 
A)  2 
B)  6 
C)  10 
D)  26

Question 7

Some companies follow a strategy of sales maximization.They say that this puts them in close touch with their customers and they can better track the market, responding to needs more quickly.However, this increases costs because of the need to stock a wider variety of parts and sizes and colors, etc.What would make this strategy a profit-maximizing one?

Accepted Answer

The increase in reve

Question 8

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 9

A profit-maximizing firm always

Accepted Answer

A)  sells its output at P = MR. 
B)  produces at the output at which MR = 0. 
C)  hires labor until the MRP of labor = 0. 
D)  produces every unit of output for which MR > MC. 
A)  sells its output at P = MR. 
B)  produces at the output at which MR = 0. 
C)  hires labor until the MRP of labor = 0. 
D)  produces every unit of output for which MR > MC.

Question 10

A graph of total profits is always likely to be positively sloped throughout its length.

Accepted Answer

A) True 
 B)False

Question 11

Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.

Accepted Answer

A) True 
 B)False

Question 12

Marginal profit is the additional profit that accrues to the firm when the output rises by one unit.

Accepted Answer

A) True 
 B)False

Question 13

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 14

If average cost is falling, then marginal cost must be falling.

Accepted Answer

A) True 
 B)False

Question 15

Is it a good thing to go to a point where marginal profit is zero? Explain.

Accepted Answer

A common misunderstanding about marginal

Question 16

If the average cost of a product is $10 per unit and the price is $5, the firm is losing money.

Accepted Answer

A) True 
 B)False

Question 17

Total profit

Accepted Answer

A)  is the difference between sales revenue and costs. 
B)  maximization is always the goal of every firm. 
C)  is always defined the same by both economists and accountants. 
D)  is maximized when sales are maximized. 
A)  is the difference between sales revenue and costs. 
B)  maximization is always the goal of every firm. 
C)  is always defined the same by both economists and accountants. 
D)  is maximized when sales are maximized.

Question 18

If your cumulative Grade Point Average (GPA) after two years of college is 3.0, and your grades for the current semester average 3.5, what will happen to your cumulative GPA? Explain the similarity of this example to the case of marginal cost and average cost.

Accepted Answer

If the current semester's GPA is above t

Question 19

In the case study in the text involving calculator production, the fact that each calculator produced added $10.30 to cost and $12 to revenue made clear the value of ____ in determining whether or not to suspend production.

Accepted Answer

A)  average fixed cost 
B)  cost saving 
C)  marginal analysis 
D)  the level of fixed cost 
A)  average fixed cost 
B)  cost saving 
C)  marginal analysis 
D)  the level of fixed cost

Question 20

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.

Exam 8: Output, Price, and Profit: The Importance of Marginal Analysis

Total profit = Total revenue - Total cost (including opportunity cost). Total profit defined in this way is called

Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.

The addition to total revenue resulting from one more unit of output is called marginal revenue.

Total cost equals average cost multiplied by the quantity of output.

When a firm's fixed cost rises, its total profit curve shifts

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

A profit-maximizing firm always

A graph of total profits is always likely to be positively sloped throughout its length.

Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.

Marginal profit is the additional profit that accrues to the firm when the output rises by one unit.

If average cost is falling, then marginal cost must be falling.

Is it a good thing to go to a point where marginal profit is zero? Explain.

If the average cost of a product is $10 per unit and the price is $5, the firm is losing money.

Total profit

If your cumulative Grade Point Average (GPA) after two years of college is 3.0, and your grades for the current semester average 3.5, what will happen to your cumulative GPA? Explain the similarity of this example to the case of marginal cost and average cost.

In the case study in the text involving calculator production, the fact that each calculator produced added $10.30 to cost and $12 to revenue made clear the value of ____ in determining whether or not to suspend production.

The typical total profit graphical presentation is shown as

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 I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

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

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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