Question 1

A firm should use marginal analysis when making a price-output decision.

Accepted Answer

A) True 
 B)False

Question 2

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} $
-At optimal output, the firm described in Table 8-1 sells its output at a price of

Accepted Answer

A)  $5.40. 
B)  $6.25. 
C)  $7. 
D)  $8. 
A)  $5.40. 
B)  $6.25. 
C)  $7. 
D)  $8.

Question 3

If a firm's fixed cost (overhead) increases, what happens to its profit-maximizing price and output?

Accepted Answer

Nothing.Whatever output was most profita

Question 4

Average cost

Accepted Answer

A)  is always larger than marginal cost. 
B)  declines for some range of output, hits a minimum, and then increases. 
C)  is always smaller than marginal cost. 
D)  is total cost/price of the product. 
A)  is always larger than marginal cost. 
B)  declines for some range of output, hits a minimum, and then increases. 
C)  is always smaller than marginal cost. 
D)  is total cost/price of the product.

Question 5

Michael Jordan averaged 35 points per game over a 100-game season.During the playoff round of 10 games, he averaged 50 points, and in the five-game championship series, he led the Chicago Bulls to victory, averaging 40 points.For the entire season, how many points did Jordan score, what was his average, and did the championship series pull his previous average up or down?

Accepted Answer

Over the regular season, Jordan scored 3

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

Figure 8-5
  
-In Figure 8-5, profits are maximized at output of

Accepted Answer

A)  10. 
B)  35. 
C)  50. 
D)  60. 
A)  10. 
B)  35. 
C)  50. 
D)  60.

Question 8

If marginal revenue and marginal cost are not equal, profit can be maximized by

Accepted Answer

A)  increasing output if MR > MC. 
B)  decreasing output if MC > MR. 
C)  moving to the output where the slopes of TR and TC are equal. 
D)  All of the above are correct. 
A)  increasing output if MR > MC. 
B)  decreasing output if MC > MR. 
C)  moving to the output where the slopes of TR and TC are equal. 
D)  All of the above are correct.

Question 9

The demand curve facing Company ABC is perfectly elastic.What is its marginal revenue?

Accepted Answer

A)  Equal to the average revenue. 
B)  Less than the price. 
C)  Higher than the price. 
D)  Higher than the average revenue. 
A)  Equal to the average revenue. 
B)  Less than the price. 
C)  Higher than the price. 
D)  Higher than the average revenue.

Question 10

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 11

A firm that is earning zero economic profit should go out of business.

Accepted Answer

A) True 
 B)False

Question 12

Why is the total profit curve shaped like a hill?

Accepted Answer

If a firm produces nothing, it certainly

Question 13

If fixed cost rises,

Accepted Answer

A)  the profit maximizing level of output would decrease. 
B)  the profit maximizing level of output would not change. 
C)  marginal cost rises. 
D)  variable cost falls. 
A)  the profit maximizing level of output would decrease. 
B)  the profit maximizing level of output would not change. 
C)  marginal cost rises. 
D)  variable cost falls.

Question 14

Total profit is maximized where

Accepted Answer

A)  MR = MC. 
B)  marginal profit is zero. 
C)  the slope of the marginal profit curve is zero. 
D)  All of the above are correct. 
A)  MR = MC. 
B)  marginal profit is zero. 
C)  the slope of the marginal profit curve is zero. 
D)  All of the above are correct.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Dunston Military Academy has an annual deficit of $250,000.Its 1,000 students pay tuition of $10,000 each per year.The economics faculty has recommended solving the problem by recruiting additional athletes with $5,000 scholarships.Each additional athlete will cost the school $2,500 (equipment, etc.).Assuming the academy agrees, how many athletes are needed to eliminate the deficit?

Accepted Answer

A)  Zero, the deficit cannot be eliminated by giving more scholarships. 
B)  25 
C)  50 
D)  100 
A)  Zero, the deficit cannot be eliminated by giving more scholarships. 
B)  25 
C)  50 
D)  100

Question 17

Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).

Accepted Answer

The cost of the beverage includes the co

Question 18

A computer manufacturer sells 1,000 units per month at $500 each.A price cut to $400 is being considered.His marginal cost is constant at $300 per unit.To maintain profits, quantity sold must increase to at least

Accepted Answer

A)  1,500. 
B)  2,000. 
C)  2,500. 
D)  3,000. 
A)  1,500. 
B)  2,000. 
C)  2,500. 
D)  3,000.

Question 19

Explain whether a firm's decisions are optimal if economic profit is (a) positive, (b) zero, or (c) negative.

Accepted Answer

If economic profit is positive, then the

Question 20

Figure 8-1
  
-Which graph in Figure 8-1 shows a typical firm's total revenue and total cost curves?

Accepted Answer

A)  (a) 
B)  (b) 
C)  (c) 
D)  (d) 
A)  (a) 
B)  (b) 
C)  (c) 
D)  (d)

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

A firm should use marginal analysis when making a price-output decision.

If a firm's fixed cost (overhead) increases, what happens to its profit-maximizing price and output?

Average cost

Average cost equals

Figure 8-5 -In Figure 8-5, profits are maximized at output of

If marginal revenue and marginal cost are not equal, profit can be maximized by

The demand curve facing Company ABC is perfectly elastic.What is its marginal revenue?

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 that is earning zero economic profit should go out of business.

Why is the total profit curve shaped like a hill?

If fixed cost rises,

Total profit is maximized where

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

Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).

A computer manufacturer sells 1,000 units per month at $500 each.A price cut to $400 is being considered.His marginal cost is constant at $300 per unit.To maintain profits, quantity sold must increase to at least

Explain whether a firm's decisions are optimal if economic profit is (a) positive, (b) zero, or (c) negative.

Figure 8-1 -Which graph in Figure 8-1 shows a typical firm's total revenue and total cost curves?

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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