Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

A firm's total profit is the difference between its sales and what it pays out in costs.

Accepted Answer

A) True 
 B)False

Question 3

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 4

What rule(s) should a firm follow in deciding optimum output for profit maximization?

Accepted Answer

The firm should expand its output as lon

Question 5

Thomas Edison once said that he began making real profit on light bulbs when he dumped his surplus on the European market at less than the "cost of production." From this we can deduce Edison

Accepted Answer

A)  did not want to maximize profit. 
B)  understood the difference between marginal and average cost. 
C)  had a different definition of the term "profit." 
D)  did not understand the difference between fixed and variable cost. 
A)  did not want to maximize profit. 
B)  understood the difference between marginal and average cost. 
C)  had a different definition of the term "profit." 
D)  did not understand the difference between fixed and variable cost.

Question 6

Figure 8-3
  
-Figure 8-3 shows a firm's total profit function.At an output of 40, the firm's total profit equals ____.

Accepted Answer

A)  10 
B)  40 
C)  200 
D)  400 
A)  10 
B)  40 
C)  200 
D)  400

Question 7

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

Question 8

A firm can choose a quantity of output, and the price is then determined by

Accepted Answer

A)  the government. 
B)  the supply schedule. 
C)  consumers' demand. 
D)  the average cost. 
A)  the government. 
B)  the supply schedule. 
C)  consumers' demand. 
D)  the average cost.

Question 9

An airline is considering adding a flight from Chicago to Sioux Falls.Total cost of the flight is $5,500.Variable cost is $2,000.Revenue from the flight is expected to be $3,000.Should the flight be added?

Accepted Answer

A)  No, the revenue ($3,000) is below the cost ($5,500.) 
B)  No, the addition to profit is very small and not worth the effort. 
C)  Yes, profit increases by $1,000 ($3,000 - $2,000.) 
D)  Yes, profit increases by $3,000. 
A)  No, the revenue ($3,000) is below the cost ($5,500.) 
B)  No, the addition to profit is very small and not worth the effort. 
C)  Yes, profit increases by $1,000 ($3,000 - $2,000.) 
D)  Yes, profit increases by $3,000.

Question 10

A firm should keep producing output as long as the marginal profit is greater than zero, no matter how small it is.

Accepted Answer

A) True 
 B)False

Question 11

All business firms should consider their fixed costs in determining the prices they set.

Accepted Answer

A) True 
 B)False

Question 12

Explain the rules for finding maximum profit using total revenue and total cost and marginal revenue and marginal cost.

Accepted Answer

Maximum profit is where total revenue ex

Question 13

Marginal, average, and total figures are unrelated.

Accepted Answer

A) True 
 B)False

Question 14

Profit maximization occurs when MC = MR.

Accepted Answer

A) True 
 B)False

Question 15

A grocery store sells soup for $1.50 a can, or $2.50 for two cans.To a customer, the marginal cost of buying the second can of soup is

Accepted Answer

A)  $1. 
B)  $1.25. 
C)  $1.50. 
D)  $2.50. 
A)  $1. 
B)  $1.25. 
C)  $1.50. 
D)  $2.50.

Question 16

"Satisficing" rather than "maximizing" primarily emerges under conditions where

Accepted Answer

A)  information is costly. 
B)  management lacks ambition. 
C)  profit maximization is rejected on moral grounds. 
D)  risk is minimal. 
A)  information is costly. 
B)  management lacks ambition. 
C)  profit maximization is rejected on moral grounds. 
D)  risk is minimal.

Question 17

Table 8-2
 $$\begin{array} { c c r } 
\underline {\text { Price } }& \underline {\text { Quantity }} &\underline { \text { Tatal Cast }} \
 \$ 22 & 6 & \$ 60 \
20 & 10 & 100 \
18 & 16 & 160 \
16 & 21 & 210 \
14 & 28 & 280
\end{array}$$
-In Table 8-2, the profit-maximizing level of output is

Accepted Answer

A)  6. 
B)  10. 
C)  16. 
D)  21. 
A)  6. 
B)  10. 
C)  16. 
D)  21.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Firms may reasonably make a decision to cut prices if

Accepted Answer

A)  profits are not likely to decline. 
B)  marginal profit is not negative. 
C)  MR > MC. 
D)  All of the above are correct. 
A)  profits are not likely to decline. 
B)  marginal profit is not negative. 
C)  MR > MC. 
D)  All of the above are correct.

Question 20

If total profit is at a maximum, then average profit is zero.

Accepted Answer

A) True 
 B)False

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

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

A firm's total profit is the difference between its sales and what it pays out in costs.

Optimal decisions are made on the basis of

What rule(s) should a firm follow in deciding optimum output for profit maximization?

Thomas Edison once said that he began making real profit on light bulbs when he dumped his surplus on the European market at less than the "cost of production." From this we can deduce Edison

Figure 8-3 -Figure 8-3 shows a firm's total profit function.At an output of 40, the firm's total profit equals ____.

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

A firm can choose a quantity of output, and the price is then determined by

An airline is considering adding a flight from Chicago to Sioux Falls.Total cost of the flight is $5,500.Variable cost is $2,000.Revenue from the flight is expected to be $3,000.Should the flight be added?

A firm should keep producing output as long as the marginal profit is greater than zero, no matter how small it is.

All business firms should consider their fixed costs in determining the prices they set.

Explain the rules for finding maximum profit using total revenue and total cost and marginal revenue and marginal cost.

Marginal, average, and total figures are unrelated.

Profit maximization occurs when MC = MR.

A grocery store sells soup for $1.50 a can, or $2.50 for two cans.To a customer, the marginal cost of buying the second can of soup is

"Satisficing" rather than "maximizing" primarily emerges under conditions where

Table 8-2 \ 22 6 \ 60 20 10 100 18 16 160 16 21 210 14 28 280 -In Table 8-2, the profit-maximizing level of output is

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

Firms may reasonably make a decision to cut prices if

If total profit is at a maximum, then average profit is zero.

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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