Question 1

Most consumers in stores use marginal analysis to make their buying decisions.

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

The difference between economic profit and accountant's definition of profit is that an economist's total cost counts the ____ of inputs.

Accepted Answer

A) absolute value 
B) overheads 
C) opportunity cost 
D) gross cost 
A) absolute value 
B) overheads 
C) opportunity cost 
D) gross cost

Question 4

Many large universities rent out parts of their campuses to conference groups during the summer because such groups cause little damage, require little staff attention, and bring in large amounts of income. A university's decision to rent its campus to a conference group is most clearly based on

Accepted Answer

A) the idea that price and quantity selection is a single decision. 
B) the principle of decreasing returns to scale. 
C) marginal analysis. 
D) average cost considerations. 
A) the idea that price and quantity selection is a single decision. 
B) the principle of decreasing returns to scale. 
C) marginal analysis. 
D) average cost considerations.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

If a firm has determined its optimal output level, where MR = MC, then price

Accepted Answer

A) is unchanged. 
B) is set by statistical analysis of the market. 
C) is equal to MC. 
D) is determined by the market demand at that output. 
A) is unchanged. 
B) is set by statistical analysis of the market. 
C) is equal to MC. 
D) is determined by the market demand at that output.

Question 7

In reality, decisions made by firms may not always produce maximum total profit because some executives

Accepted Answer

A) are more motivated by altruism. 
B) are more interested in market share than profits. 
C) may push research and development to the point that profits decline. 
D) All of the responses are correct. 
A) are more motivated by altruism. 
B) are more interested in market share than profits. 
C) may push research and development to the point that profits decline. 
D) All of the responses are correct.

Question 8

A grocery store sells soup for $1.50 a can, or $2.50 for two cans. To a customer, the marginal cost of buying the second can of soup is

Accepted Answer

A) $1. 
B) $1.25. 
C) $1.50. 
D) $2.50. 
A) $1. 
B) $1.25. 
C) $1.50. 
D) $2.50.

Question 9

A computer manufacturer sells 1,000 units per month at $500 each. A price cut to $400 is being considered. His marginal cost is constant at $300 per unit. To maintain profits, quantity sold must increase to at least

Accepted Answer

A) 1,500 
B) 2,000 
C) 2,500 
D) 3,000 
A) 1,500 
B) 2,000 
C) 2,500 
D) 3,000

Question 10

Accounting profit differs from economic profit by the amount of the explicit costs faced by a firm.

Accepted Answer

A) True 
 B)False

Question 11

Marginal revenue is defined as

Accepted Answer

A) the change in total revenue from a unit change in price. 
B) the change in average revenue from a one-unit change in output. 
C) the change in total revenue from a one-unit change in output. 
D) the change total cost from a one-unit change in output. 
A) the change in total revenue from a unit change in price. 
B) the change in average revenue from a one-unit change in output. 
C) the change in total revenue from a one-unit change in output. 
D) the change total cost from a one-unit change in output.

Question 12

The rule of equating marginal benefit with marginal cost is a tool that can be applied to a wide variety of decisions, not just economics.

Accepted Answer

A) True 
 B)False

Question 13

The demand curve for a firm's product is also the curve showing

Accepted Answer

A) total revenue. 
B) marginal revenue. 
C) average revenue. 
D) average profits. 
A) total revenue. 
B) marginal revenue. 
C) average revenue. 
D) average profits.

Question 14

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

Accepted Answer

A) chooses either output or price, and consumer demand determines the other. 
B) has no control over either quantity or price. 
C) makes two decisions by setting both optimal output and optimal price. 
D) generally leaves both quantity and price decisions to consumers. 
A) chooses either output or price, and consumer demand determines the other. 
B) has no control over either quantity or price. 
C) makes two decisions by setting both optimal output and optimal price. 
D) generally leaves both quantity and price decisions to consumers.

Question 15

Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.

Accepted Answer

A) True 
 B)False

Question 16

A graph of total profits is always likely to be positively sloped throughout its length.

Accepted Answer

A) True 
 B)False

Question 17

A firm is generally more interested in marginal profits than in total profits.

Accepted Answer

A) True 
 B)False

Question 18

Figure 8-5
 
In Figure 8-5, profits are maximized at output of

Accepted Answer

A) 10 
B) 35 
C) 50 
D) 60 
A) 10 
B) 35 
C) 50 
D) 60

Question 19

An optimal level of output is one at which marginal profit > 0.

Accepted Answer

A) True 
 B)False

Question 20

Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.

Accepted Answer

A) True 
 B)False

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

Most consumers in stores use marginal analysis to make their buying decisions.

Average cost equals

The difference between economic profit and accountant's definition of profit is that an economist's total cost counts the ____ of inputs.

Many large universities rent out parts of their campuses to conference groups during the summer because such groups cause little damage, require little staff attention, and bring in large amounts of income. A university's decision to rent its campus to a conference group is most clearly based on

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

If a firm has determined its optimal output level, where MR = MC, then price

In reality, decisions made by firms may not always produce maximum total profit because some executives

A grocery store sells soup for $1.50 a can, or $2.50 for two cans. To a customer, the marginal cost of buying the second can of soup is

A computer manufacturer sells 1,000 units per month at $500 each. A price cut to $400 is being considered. His marginal cost is constant at $300 per unit. To maintain profits, quantity sold must increase to at least

Accounting profit differs from economic profit by the amount of the explicit costs faced by a firm.

Marginal revenue is defined as

The rule of equating marginal benefit with marginal cost is a tool that can be applied to a wide variety of decisions, not just economics.

The demand curve for a firm's product is also the curve showing

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

Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.

A graph of total profits is always likely to be positively sloped throughout its length.

A firm is generally more interested in marginal profits than in total profits.

Figure 8-5 In Figure 8-5, profits are maximized at output of

An optimal level of output is one at which marginal profit > 0.

Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.

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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