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

In 1984, British Prime Minister Margaret Thatcher decided to shut down so-called uneconomic coal mines owned by the government. The National Union of Mineworkers protested, asserting that there was enough coal in the mines to continue current levels of production for years. Thatcher implicitly argued that her decision was economically sound because, at any practical level of output, for each "uneconomic" mine,

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

Total profit

​ To maximize its profits, the firm described in Table 8-1 should produce ____ unit(s)of output.

Business people often use "hunches" and intuition to make decisions regarding what to produce.

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

Average cost

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

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

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

The term "satisficing" for decision-making behavior by many firms was coined by

If a company plots its total profit curve, it would show

When marginal cost exceeds marginal revenue,

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.

If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total profit is

If a firm finds itself at an output level where MR

Marginal revenue equals the change in total revenue that is earned by selling one more unit of output.

A firm's fixed cost

An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

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