Question 1

Economists assume that business firms have many goals, and profit maximization is just one of them.

Accepted Answer

A) True 
 B)False

Question 2

If average cost is falling, then marginal cost must be falling.

Accepted Answer

A) True 
 B)False

Question 3

Average cost is the cost of producing the next unit.

Accepted Answer

A) True 
 B)False

Question 4

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.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

Net benefit is equal to total benefit minus marginal cost.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

In arriving at the quantity of output and price of its product, a company

Accepted Answer

A) chooses both price and quantity, since it understands its demand relationship. 
B) cannot set price or quantity; this is done by the market. 
C) makes two separate decisions about quantity and product price. 
D) can set price but quantity is determined by market demand. 
A) chooses both price and quantity, since it understands its demand relationship. 
B) cannot set price or quantity; this is done by the market. 
C) makes two separate decisions about quantity and product price. 
D) can set price but quantity is determined by market demand.

Question 11

Some companies follow a strategy of sales maximization. They say that this puts them in close touch with their customers and they can better track the market, responding to needs more quickly. However, this increases costs because of the need to stock a wider variety of parts, sizes, colors, etc. What would make this strategy a profit-maximizing one?

Accepted Answer

The increase in reve

Question 12

If the price of a product is $10 per unit and the variable cost per unit is $5, the firm is making a profit.

Accepted Answer

A) True 
 B)False

Question 13

Price and output decisions are two aspects of the same choice.

Accepted Answer

A) True 
 B)False

Question 14

A firm's average fixed cost

Accepted Answer

A) does not vary with output. 
B) decreases as output rises. 
C) is equal to average cost when average cost is minimized 
D) causes marginal cost to rise as output rises. 
A) does not vary with output. 
B) decreases as output rises. 
C) is equal to average cost when average cost is minimized 
D) causes marginal cost to rise as output rises.

Question 15

Distinguish between the economist's definition of profit and the accountant's definition. Which is superior for decision making?

Accepted Answer

Accounting profit is revenue minus actua

Question 16

Figure 8-5
 
-In Figure 8-5, the firm's marginal profit at the profit maximizing output level

Accepted Answer

A) is 10. 
B) is 35. 
C) is 0. 
D) cannot be determined from the diagram. 
A) is 10. 
B) is 35. 
C) is 0. 
D) cannot be determined from the diagram.

Question 17

At a profit-maximizing output level,

Accepted Answer

A) marginal revenue minus marginal cost equals zero. 
B) marginal profit equals zero. 
C) the slope of the total profit curve is zero. 
D) All of the responses are correct. 
A) marginal revenue minus marginal cost equals zero. 
B) marginal profit equals zero. 
C) the slope of the total profit curve is zero. 
D) All of the responses are correct.

Question 18

In the short run, which are most important in determining changes in output?

Accepted Answer

A) Marginal cost and marginal revenue 
B) Total costs and revenue 
C) Average cost and average revenue 
D) Fixed costs 
A) Marginal cost and marginal revenue 
B) Total costs and revenue 
C) Average cost and average revenue 
D) Fixed costs

Question 19

Total profit = Total revenue − Total cost (including opportunity cost). Total profit defined in this way is called

Accepted Answer

A) accounting profit. 
B) economic profit. 
C) absolute profit. 
D) relative profit. 
A) accounting profit. 
B) economic profit. 
C) absolute profit. 
D) relative profit.

Question 20

Total profit is maximized where

Accepted Answer

A) MR = MC. 
B) marginal profit is zero. 
C) the slope of the marginal profit curve is zero. 
D) All of the responses are correct. 
A) MR = MC. 
B) marginal profit is zero. 
C) the slope of the marginal profit curve is zero. 
D) All of the responses are correct.

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

Economists assume that business firms have many goals, and profit maximization is just one of them.

If average cost is falling, then marginal cost must be falling.

Average cost is the cost of producing the next unit.

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

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

Total profit is maximized

Net benefit is equal to total benefit minus marginal cost.

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

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

In arriving at the quantity of output and price of its product, a company

If the price of a product is $10 per unit and the variable cost per unit is $5, the firm is making a profit.

Price and output decisions are two aspects of the same choice.

A firm's average fixed cost

Distinguish between the economist's definition of profit and the accountant's definition. Which is superior for decision making?

Figure 8-5 -In Figure 8-5, the firm's marginal profit at the profit maximizing output level

At a profit-maximizing output level,

In the short run, which are most important in determining changes in output?

Total profit = Total revenue − Total cost (including opportunity cost). Total profit defined in this way is called

Total profit is maximized where

What Is Economics

The Economy: 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

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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