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

A small business owner who is earning a positive economic profit, no matter how small, is doing better than if he or she sold his or her business and went to work for another firm.

The rule of equating marginal benefit with marginal cost is proper for economics, but it does not describe the way in which people make non-economic decisions.

In the case study discussed in the chapter, the electronics firm was actually enhancing its profits by selling calculators at a price that was below average cost.

A profit-maximizing firm always

The average revenue curve can also be described as the demand curve.

For a number of years, General Motors used a pricing strategy designed to maintain at least 40 percent of the American car market. Does this strategy suggest that GM was maximizing profits or pursuing an alternative strategy?

Suppose that on a Saturday night at 10 pm, a large hotel has 300 vacant rooms, with little expectation of renting them at such a late hour on a weekend. A traveler comes in the door, looking a bit down on his luck, and asks how much a room will cost. Since he can't afford the normal rate of $150, the night manager decides to let him stay in the room for only $40. Is it likely that this decision reduced, or increased, the hotel's profits? Explain your answer.

By definition, a firm that practices satisficing

Average revenue is equal to

Average cost can be thought of as the cost per unit.

Figure 8-3 Figure 8-3 shows a firm's total profit function. At an output of 40, the firm's total profit equals ____.

At optimal output, the firm described in Table 8-1 earns a profit of

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

Marginal cost for a firm can be derived from its demand curve.

If the output of a firm is increased by one unit, the revenue addition is called

If output is increased beyond the point where total profit is maximized,

Marginal, average, and total figures are unrelated.

Total revenue

Which of the following is true if the opportunity cost of producing a particular good is less than its accounting profit?

Marginal cost