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

Anna is a tax accountant and she left her job with a large public accounting company to start her own accounting office.In doing this, Anna gave up her salary of $120,000 and took $60,000 out of her savings (which was earning a return of 5 percent) to fund her startup.Her first year, she had $180,000 in revenues and had $40,000 in operating expenses.Anna's tax accounting business earned economic profits of

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

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

Profit can be maximized only where marginal revenue equals

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

Ski resorts have begun to offer activities in the summer, like music festivals and mountain biking, rather than closing down the facilities for the season.This a good decision for a ski resort when

The typical total profit graphical presentation is shown as

Sally leaves her $24,000 secretarial position with a company and invests her savings of $15,000 (on which she was earning 6 percent interest) in her own Ready Sec agency.After expenses, her net income was $28,900.Her economic profit was

Economists use a model that is a literal description of business' behavior.

A firm's average fixed cost

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

Marginal revenue is defined as

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

If the marginal profit of the next unit is negative, the firm should produce more output in order to generate greater profit.

Since the demand curve is downward sloping, the graph of total profits is also has a negative slope.

Total revenue is equal to quantity multiplied by average revenue.

A cellphone maker sells 6,000 units per month at $600 each.The firm is investigating whether a price cut to $500 is warranted.The firm's marginal cost of production of each phone is a constant $400 per unit.To maintain profits at their current level, quantity sold must increase to at least

The marginal cost of Alexa's Guide to Street People and Their Pets is constant at $5.Alexa sells 5,000 copies per year at $20 per copy.She would like to increase readership and hold total profit constant.If the price goes to $15, how many copies must she sell?

When a firm's fixed cost increases,

Figure 8-5 -At a profit-maximizing output level,