Question 1

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 2

Marginal cost is defined by the slope of the total revenue curve.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

Over the range of most of a firm's output, average revenue is greater than price.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) optimizing behavior. 
B) profit maximizing. 
C) satisficing. 
D) saturating. 
A) optimizing behavior. 
B) profit maximizing. 
C) satisficing. 
D) saturating.

Question 7

Firms may reasonably decide 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 responses are correct. 
A) profits are not likely to decline. 
B) marginal profit is not negative. 
C) MR > MC. 
D) All of the responses are correct.

Question 8

Figure 8-2  
-Figure 8-2 shows a manufacturer's total profit curve.To maximize total profit, the manufacturer should produce ____ units of output.

Accepted Answer

A) 10 
B) 12 
C) 16 
D) 18 
A) 10 
B) 12 
C) 16 
D) 18

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Marginal cost curves and average cost curves are both purely upward sloping.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A common misunderstanding about marginal

Question 12

Virtually all firms expend resources to do precise calculations of marginal cost and marginal revenue for decision making.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) adding a standard markup percentage to marginal cost. 
B) the demand curve. 
C) making it equal to MR = MC. 
D) subtracting the marginal cost from total revenue. 
A) adding a standard markup percentage to marginal cost. 
B) the demand curve. 
C) making it equal to MR = MC. 
D) subtracting the marginal cost from total revenue.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

If the quantity output and average cost at that output level are known, then it is possible to determine marginal cost for that output level.

Accepted Answer

A) True 
 B)False

Question 16

Accounting profit is usually smaller than economic profit.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Profit maximization is

Accepted Answer

A) the only motive of any firm's management. 
B) a behavioral assumption to simplify analysis. 
C) the same as satisficing. 
D) a literal description of a firm's behavior. 
A) the only motive of any firm's management. 
B) a behavioral assumption to simplify analysis. 
C) the same as satisficing. 
D) a literal description of a firm's behavior.

Question 19

A firm has $200,000 to spend on either direct sales or advertising.Suppose further that if the $200,000 is spent on direct sales, it will bring in an accounting profit of $40,000.Instead, the (accounting) profit it could obtain from a $200,000 investment in advertising is $X.Compare the profitability of the two options if (a) X = 50,000, (b) X = 30,000, or (c) X = 40,000.

Accepted Answer

If X = 50,000, then economic profit of d

Question 20

A firm's total revenue is simply the price of its product multiplied by the quantity sold.

Accepted Answer

A) True 
 B)False

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

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

Marginal cost is defined by the slope of the total revenue curve.

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

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

Over the range of most of a firm's output, average revenue is greater than price.

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

Firms may reasonably decide to cut prices if

Figure 8-2 -Figure 8-2 shows a manufacturer's total profit curve.To maximize total profit, the manufacturer should produce ____ units of output.

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

Marginal cost curves and average cost curves are both purely upward sloping.

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

Virtually all firms expend resources to do precise calculations of marginal cost and marginal revenue for decision making.

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

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

If the quantity output and average cost at that output level are known, then it is possible to determine marginal cost for that output level.

Accounting profit is usually smaller than economic profit.

Total profit is maximized

Profit maximization is

A firm's total revenue is simply the price of its product multiplied by the quantity sold.

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters