Question 1

Economists and accountants use the same definition of profit.

Accepted Answer

A) True 
 B)False

Question 2

Total profit is maximized

Accepted Answer

A)  where the difference between total revenue and total cost is greatest. 
B)  at that output level where marginal revenue equals average cost. 
C)  where total revenue is at a maximum. 
D)  at the point where all variable costs are covered. 
A)  where the difference between total revenue and total cost is greatest. 
B)  at that output level where marginal revenue equals average cost. 
C)  where total revenue is at a maximum. 
D)  at the point where all variable costs are covered.

Question 3

Profit is maximized at the output at which marginal revenue equals marginal cost.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Why assume that firms maximize profit, when it is easy to find companies that pursue other goals such as saving rain forests (Ben and Jerry's) and sponsoring Mister Rogers (Sears)?

Accepted Answer

Assuming that the two cited firms are no

Question 6

Total revenue cannot be derived from the demand curve or a demand schedule.

Accepted Answer

A) True 
 B)False

Question 7

Once a firm has selected a price for its product, quantity is decided by consumers and their demand curves.

Accepted Answer

A) True 
 B)False

Question 8

A firm is generally more interested in marginal profits than in total profits.

Accepted Answer

A) True 
 B)False

Question 9

What is the value of marginal profit at the profit-maximizing output?

Accepted Answer

Marginal profit is the difference betwee

Question 10

An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

Accepted Answer

A)  additional passengers are needed to balance the load. 
B)  the marginal cost of additional passengers is very small. 
C)  additional passengers add little to fixed costs. 
D)  such passengers add more to profits than do those with reserved seats. 
A)  additional passengers are needed to balance the load. 
B)  the marginal cost of additional passengers is very small. 
C)  additional passengers add little to fixed costs. 
D)  such passengers add more to profits than do those with reserved seats.

Question 11

If at an output of 4,000 units Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should

Accepted Answer

A)  reduce output to maximize total profit. 
B)  increase output until marginal profit falls to zero. 
C)  do whatever is necessary to increase marginal profit. 
D)  There is not enough information to make a decision. 
A)  reduce output to maximize total profit. 
B)  increase output until marginal profit falls to zero. 
C)  do whatever is necessary to increase marginal profit. 
D)  There is not enough information to make a decision.

Question 12

Thomas Edison once complained that he was not making a profit selling light bulbs because his plants were operating 25 percent below capacity.He estimated that he could increase output 25 percent with a 2 percent increase in the cost of production.He sold the 25 percent on the foreign market at a price below what he called the "cost of production." We can deduce that Edison really meant

Accepted Answer

A)  Marginal cost was below average cost but less than marginal revenue. 
B)  Average cost exceeded variable cost, which exceeded marginal revenue. 
C)  Variable cost exceeded fixed cost but was less than marginal revenue. 
D)  Marginal cost was above average cost but greater than marginal revenue. 
A)  Marginal cost was below average cost but less than marginal revenue. 
B)  Average cost exceeded variable cost, which exceeded marginal revenue. 
C)  Variable cost exceeded fixed cost but was less than marginal revenue. 
D)  Marginal cost was above average cost but greater than marginal revenue.

Question 13

Management gets two numbers (price and quantity) from one decision because

Accepted Answer

A)  the marginal utility of goods is fixed. 
B)  producers use both technical and financial information. 
C)  the demand curve consists of price and quantity pairs. 
D)  the average cost curve has only one low point. 
A)  the marginal utility of goods is fixed. 
B)  producers use both technical and financial information. 
C)  the demand curve consists of price and quantity pairs. 
D)  the average cost curve has only one low point.

Question 14

Profits will be maximized when the slope of the total revenue curve and the slope of the total cost curve are equal.

Accepted Answer

A) True 
 B)False

Question 15

Marginal analysis is useful in economics, but not in other areas of life.

Accepted Answer

A) True 
 B)False

Question 16

Assume that you have taken over management of a small concession stand on a local beach for the summer.Your main product is iced water, popular on hot days.You've been selling 400 cups per day at 50 cents each.The cups cost 5 cents each.One of your customers suggests that you cut the price to 40 cents to make more money.For the customer to be correct, how much must your sales increase?

Accepted Answer

The original profit was 50Q - 5Q = 45Q.T

Question 17

According to the text, when management selects a price or quantity, it also selects the other.Explain why this is true.

Accepted Answer

The firm's demand curve determ

Question 18

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 19

Which of the following is true if the opportunity cost of producing a particular good is less than its accounting profit?

Accepted Answer

A)  Economic profit is zero. 
B)  Economic profit is negative. 
C)  Economic profit is positive. 
D)  Economic profit cannot be determined. 
A)  Economic profit is zero. 
B)  Economic profit is negative. 
C)  Economic profit is positive. 
D)  Economic profit cannot be determined.

Question 20

Economists assume that business firms have many goals, and profit maximization is just one of them.

Accepted Answer

A) True 
 B)False

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

Economists and accountants use the same definition of profit.

Total profit is maximized

Profit is maximized at the output at which marginal revenue equals marginal cost.

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

Why assume that firms maximize profit, when it is easy to find companies that pursue other goals such as saving rain forests (Ben and Jerry's) and sponsoring Mister Rogers (Sears)?

Total revenue cannot be derived from the demand curve or a demand schedule.

Once a firm has selected a price for its product, quantity is decided by consumers and their demand curves.

A firm is generally more interested in marginal profits than in total profits.

What is the value of marginal profit at the profit-maximizing output?

An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

If at an output of 4,000 units Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should

Management gets two numbers (price and quantity) from one decision because

Profits will be maximized when the slope of the total revenue curve and the slope of the total cost curve are equal.

Marginal analysis is useful in economics, but not in other areas of life.

According to the text, when management selects a price or quantity, it also selects the other.Explain why this is true.

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

Which of the following is true if the opportunity cost of producing a particular good is less than its accounting profit?

Economists assume that business firms have many goals, and profit maximization is just one of them.

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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