Question 1

If a firm's average cost is currently $150, and the marginal cost is $195, then the average cost is rising.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Price and quantity decisions made by a company have vital influences on

Accepted Answer

A) the firm's labor requirements. 
B) consumer response to the product. 
C) future success of the company. 
D) All of the responses are correct. 
A) the firm's labor requirements. 
B) consumer response to the product. 
C) future success of the company. 
D) All of the responses are correct.

Question 4

The phone network says it loses money on local calls, because the $20 average monthly bill does not cover its average cost of $30.It estimates that $18 of costs are directly related to local service, with $12 the share from overall expenses (overhead).Why would the phone network be willing to operate if it is losing money?

Accepted Answer

The phone company would save $18 in cost

Question 5

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 responses 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 responses are correct.

Question 6

A firm's fixed cost

Accepted Answer

A) does not vary with output. 
B) does not change between the short run and the long run. 
C) is generally a higher percentage of its total cost at high output quantities than at low output quantities. 
D) All of the above are true. 
A) does not vary with output. 
B) does not change between the short run and the long run. 
C) is generally a higher percentage of its total cost at high output quantities than at low output quantities. 
D) All of the above are true.

Question 7

If a firm's marginal profit is negative, it should reduce its output level.

Accepted Answer

A) True 
 B)False

Question 8

Marginal profit equals the difference between marginal revenue and average cost.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

A firm's demand curve can be used to determine average revenue.

Accepted Answer

A) True 
 B)False

Question 11

If at an output of 4,000 units, Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should

Accepted Answer

A) reduce output to maximize total profit. 
B) increase output until marginal profit falls to zero. 
C) do whatever is necessary to increase marginal profit. 
D) There is not enough information to make a decision. 
A) reduce output to maximize total profit. 
B) increase output until marginal profit falls to zero. 
C) do whatever is necessary to increase marginal profit. 
D) There is not enough information to make a decision.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

When a firm's fixed costs increase it should raise its prices in order to maximize profits.

Accepted Answer

A) True 
 B)False

Question 14

The addition to total revenue resulting from one more unit of output is called marginal revenue.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Firms need to know the shape of a demand curve to use marginal analysis.

Accepted Answer

A) True 
 B)False

Question 17

Company A manufactures a single automotive component.It had total revenue of $100,000 and an economic profit of $20,000.What is the price of the component it manufactures?

Accepted Answer

A) ($100,000/quantity sold). 
B) ($100,000/quantity produced). 
C) ($100,000/quantity sold) − average cost of the product. 
D) ($100,000/quantity produced) − average cost of the product. 
A) ($100,000/quantity sold). 
B) ($100,000/quantity produced). 
C) ($100,000/quantity sold) − average cost of the product. 
D) ($100,000/quantity produced) − average cost of the product.

Question 18

A firm can always increase its output by one unit at a marginal cost of $10.Its marginal cost curve is

Accepted Answer

A) a horizontal line. 
B) a vertical line. 
C) a ray with slope equal to 10. 
D) exactly one-tenth as steep as its total cost curve. 
A) a horizontal line. 
B) a vertical line. 
C) a ray with slope equal to 10. 
D) exactly one-tenth as steep as its total cost curve.

Question 19

Profit is maximized at the output at which marginal revenue exceeds marginal cost by the greatest margin.

Accepted Answer

A) True 
 B)False

Question 20

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.

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

If a firm's average cost is currently $150, and the marginal cost is $195, then the average cost is rising.

Average cost equals

Price and quantity decisions made by a company have vital influences on

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

A firm's fixed cost

If a firm's marginal profit is negative, it should reduce its output level.

Marginal profit equals the difference between marginal revenue and average cost.

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

A firm's demand curve can be used to determine average revenue.

If at an output of 4,000 units, Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should

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

When a firm's fixed costs increase it should raise its prices in order to maximize profits.

The addition to total revenue resulting from one more unit of output is called marginal revenue.

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

Firms need to know the shape of a demand curve to use marginal analysis.

Company A manufactures a single automotive component.It had total revenue of $100,000 and an economic profit of $20,000.What is the price of the component it manufactures?

A firm can always increase its output by one unit at a marginal cost of $10.Its marginal cost curve is

Profit is maximized at the output at which marginal revenue exceeds marginal cost by the greatest margin.

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

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

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