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

The difference between economic profit and accountant's definition of profit is that an economist's total cost counts the ____ of inputs.

Herbert Simon has concluded that decision making in industry is often best described as

Given a demand curve, explain how total revenue may be calculated.

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.

Given total cost and the quantity of output, marginal cost and average cost can be determined.

In the case study discussed in the chapter, the electronics firm was actually enhancing its profits by selling calculators at a price that was below average cost.

Average revenue is equal to

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

The assumption that firms attempt to maximize profits will yield good predictions even if firms sometimes pursue other goals.

It can be shown that average revenue and price are always equal.

In the case study discussed in the chapter, the electronics firm was losing money by selling its calculators at a price that was below average cost.

A small business owner who is earning a positive economic profit, no matter how small, is doing better than if she sold her business and went to work for another firm.

Total profit equals

The total cost curve generally has

Once the profit-maximizing output where MR = MC is determined, price is set by

Marginal profit is the slope of the total profit curve.

Distinguish between the economist's definition of profit and the accountant's definition.Which is superior for decision making?

An optimal level of output is one at which marginal profit > 0.

The average revenue curve can also be described as the demand curve.

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3.They agree to split the lunch bill evenly.Ed chooses a hot dog.The marginal cost to Joe then of ordering a hamburger instead of a hot dog is