Question 1

A firm may choose to raise price when

Accepted Answer

A) profits would increase at the higher price. 
B) MR > MC. 
C) average profit is zero. 
D) it relies on marginal analysis. 
A) profits would increase at the higher price. 
B) MR > MC. 
C) average profit is zero. 
D) it relies on marginal analysis.

Question 2

Marginal profit is positive at all positive output levels.

Accepted Answer

A) True 
 B)False

Question 3

To find a firm's total revenue at every quantity, all you need to know is

Accepted Answer

A) the demand curve for its product. 
B) the demand curve for its product and its total cost. 
C) its profit-maximizing price and quantity. 
D) its total profit curve. 
A) the demand curve for its product. 
B) the demand curve for its product and its total cost. 
C) its profit-maximizing price and quantity. 
D) its total profit curve.

Question 4

Economists and accountants have very different definitions of profit.

Accepted Answer

A) True 
 B)False

Question 5

Total cost equals average cost multiplied by the quantity of output.

Accepted Answer

A) True 
 B)False

Question 6

Management gets two numbers (price and quantity)from one decision because

Accepted Answer

A) the marginal utility of goods is fixed. 
B) producers use both technical and financial information. 
C) the demand curve consists of price and quantity pairs. 
D) the average cost curve has only one low point. 
A) the marginal utility of goods is fixed. 
B) producers use both technical and financial information. 
C) the demand curve consists of price and quantity pairs. 
D) the average cost curve has only one low point.

Question 7

Marginal profit is the addition to a firm's total profit from a

Accepted Answer

A) $1 change in its price. 
B) one-unit change in its output. 
C) reduction in total cost. 
D) reduction in marginal cost. 
A) $1 change in its price. 
B) one-unit change in its output. 
C) reduction in total cost. 
D) reduction in marginal cost.

Question 8

A firm's total revenue is simply the price of its product multiplied by the quantity sold.

Accepted Answer

A) True 
 B)False

Question 9

Explain whether a firm's decisions are optimal if economic profit is (a)positive, (b)zero, or (c)negative.

Accepted Answer

If economic profit is positive, then the

Question 10

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 11

Once a firm has selected a price for its product, quantity is decided by consumers and their demand curves.

Accepted Answer

A) True 
 B)False

Question 12

The optimal number of units to produce is best expressed when

Accepted Answer

A) marginal benefit exceeds marginal cost. 
B) marginal cost exceeds marginal benefit. 
C) marginal benefit and marginal cost are close to equal. 
D) marginal benefit and marginal cost are equal to zero. 
A) marginal benefit exceeds marginal cost. 
B) marginal cost exceeds marginal benefit. 
C) marginal benefit and marginal cost are close to equal. 
D) marginal benefit and marginal cost are equal to zero.

Question 13

Economists assume that business firms attempt to maximize their profits.

Accepted Answer

A) True 
 B)False

Question 14

Is it a good thing to go to a point where marginal profit is zero? Explain.

Accepted Answer

A common misunderstanding about marginal

Question 15

Average revenue is slightly higher than price.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Whenever average cost exceeds marginal cost,

Accepted Answer

A) average cost is rising. 
B) average cost is falling. 
C) marginal cost is rising. 
D) marginal cost is falling. 
A) average cost is rising. 
B) average cost is falling. 
C) marginal cost is rising. 
D) marginal cost is falling.

Question 18

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 19

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

Accepted Answer

A) the extra revenue exceeds the variable costs of staying open during the summer. 
B) such activities draw an upscale set of customers. 
C) these activities reduce fixed costs. 
D) it provides employment for local residents. 
A) the extra revenue exceeds the variable costs of staying open during the summer. 
B) such activities draw an upscale set of customers. 
C) these activities reduce fixed costs. 
D) it provides employment for local residents.

Question 20

An airline is considering adding a flight from Chicago to Sioux Falls. Revenue from the flight is expected to be $3,000. The total cost of the flight is $5,500, and the variable cost is $2,000. Should the airline add this flight?

Accepted Answer

A) No, the revenue ($3,000)is below the cost ($5,500). 
B) No, the addition to profit is very small and not worth the effort. 
C) Yes, profit increases by $1,000 ($3,000 − $2,000). 
D) Yes, profit increases by $3,000. 
A) No, the revenue ($3,000)is below the cost ($5,500). 
B) No, the addition to profit is very small and not worth the effort. 
C) Yes, profit increases by $1,000 ($3,000 − $2,000). 
D) Yes, profit increases by $3,000.

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

A firm may choose to raise price when

Marginal profit is positive at all positive output levels.

To find a firm's total revenue at every quantity, all you need to know is

Economists and accountants have very different definitions of profit.

Total cost equals average cost multiplied by the quantity of output.

Management gets two numbers (price and quantity)from one decision because

Marginal profit is the addition to a firm's total profit from a

A firm's total revenue is simply the price of its product multiplied by the quantity sold.

Explain whether a firm's decisions are optimal if economic profit is (a)positive, (b)zero, or (c)negative.

Once a firm has selected a price for its product, quantity is decided by consumers and their demand curves.

The optimal number of units to produce is best expressed when

Economists assume that business firms attempt to maximize their profits.

Is it a good thing to go to a point where marginal profit is zero? Explain.

Average revenue is slightly higher than price.

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

Whenever average cost exceeds marginal cost,

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

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

An airline is considering adding a flight from Chicago to Sioux Falls. Revenue from the flight is expected to be $3,000. The total cost of the flight is $5,500, and the variable cost is $2,000. Should the airline add this flight?

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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