Question 1

Marginal profit is the additional profit that accrues to the firm when the output rises by one unit.

Accepted Answer

A) True 
 B)False

Question 2

Over the range of output, a firm's marginal revenue initially increases and then decreases.

Accepted Answer

A) True 
 B)False

Question 3

If MC > MR,

Accepted Answer

A) output should be reduced. 
B) marginal profit is positive. 
C) there are losses. 
D) output should be increased. 
A) output should be reduced. 
B) marginal profit is positive. 
C) there are losses. 
D) output should be increased.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A firm's demand curve can be used to determine average revenue.

Accepted Answer

A) True 
 B)False

Question 6

Average cost

Accepted Answer

A) increases and eventually begins to decrease. 
B) is equal to marginal cost at its minimum. 
C) is always greater than marginal cost. 
D) is total cost\price of the product. 
A) increases and eventually begins to decrease. 
B) is equal to marginal cost at its minimum. 
C) is always greater than marginal cost. 
D) is total cost\price of the product.

Question 7

Total revenue cannot be derived from the demand curve or a demand schedule.

Accepted Answer

A) True 
 B)False

Question 8

Profit maximization is

Accepted Answer

A) the only motive of any firm's management. 
B) a behavioral assumption to simplify analysis. 
C) the same as satisficing. 
D) a literal description of a firm's behavior. 
A) the only motive of any firm's management. 
B) a behavioral assumption to simplify analysis. 
C) the same as satisficing. 
D) a literal description of a firm's behavior.

Question 9

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest)in a new real estate business. Her accountant predicted a $60,000 revenue the first year. Her husband, an economist, forecast her profit to be

Accepted Answer

A) $10,000. 
B) $28,000. 
C) $32,000. 
D) $60,000. 
A) $10,000. 
B) $28,000. 
C) $32,000. 
D) $60,000.

Question 10

Figure 8-2
 
Figure 8-2 shows a manufacturer's total profit curve. To maximize total profit, the manufacturer should produce ____ units of output.

Accepted Answer

A) 10 
B) 12 
C) 16 
D) 18 
A) 10 
B) 12 
C) 16 
D) 18

Question 11

The total cost of producing one unit of output is $200; two units cost $300, three units $450, and four units $800. Fixed cost is $50. Draw the associated total cost, average cost, and marginal cost curves, placing total cost on one graph and marginal and average cost on a second graph.

Accepted Answer

Total cost will rise slowly at first and

Question 12

When a firm's fixed costs increase it should raise its prices in order to maximize profits.

Accepted Answer

A) True 
 B)False

Question 13

Sally leaves her $24,000 secretarial position with a company and invests her savings of $15,000 (on which she was earning 6 percent interest)in her own Ready Sec agency. After expenses, her net income was $28,900. Her economic profit was

Accepted Answer

A) $4,900. 
B) $4,000. 
C) $28,900. 
D) −$10,100. 
A) $4,900. 
B) $4,000. 
C) $28,900. 
D) −$10,100.

Question 14

The demand curve facing a firm is also the firm's

Accepted Answer

A) total utility curve. 
B) average revenue curve. 
C) average utility curve. 
D) total revenue curve. 
A) total utility curve. 
B) average revenue curve. 
C) average utility curve. 
D) total revenue curve.

Question 15

When a firm's fixed cost rises, its total profit curve shifts

Accepted Answer

A) up at every output level. 
B) down at every output level. 
C) left at every profit level. 
D) right at every profit level. 
A) up at every output level. 
B) down at every output level. 
C) left at every profit level. 
D) right at every profit level.

Question 16

Most business people calculate marginal cost and marginal revenue to decide how much to produce.

Accepted Answer

A) True 
 B)False

Question 17

Marginal analysis is useful in economics, but not in other areas of life.

Accepted Answer

A) True 
 B)False

Question 18

The demand curve facing Company ABC is perfectly elastic. What is its marginal revenue?

Accepted Answer

A) Equal to the average revenue 
B) Less than the price 
C) Higher than the price 
D) Higher than the average revenue 
A) Equal to the average revenue 
B) Less than the price 
C) Higher than the price 
D) Higher than the average revenue

Question 19

To find its profit-maximizing output level, a firm should operate where

Accepted Answer

A) AVC = MC. 
B) MC = MR. 
C) TFC = TVC. 
D) AFC = AVC. 
A) AVC = MC. 
B) MC = MR. 
C) TFC = TVC. 
D) AFC = AVC.

Question 20

Optimal decisions are made on the basis of

Accepted Answer

A) rate of growth in total profit. 
B) average cost and average revenue figures. 
C) impact on market share. 
D) marginal cost and marginal revenue figures. 
A) rate of growth in total profit. 
B) average cost and average revenue figures. 
C) impact on market share. 
D) marginal cost and marginal revenue figures.

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

Marginal profit is the additional profit that accrues to the firm when the output rises by one unit.

Over the range of output, a firm's marginal revenue initially increases and then decreases.

If MC > MR,

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

A firm's demand curve can be used to determine average revenue.

Average cost

Total revenue cannot be derived from the demand curve or a demand schedule.

Profit maximization is

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest)in a new real estate business. Her accountant predicted a $60,000 revenue the first year. Her husband, an economist, forecast her profit to be

Figure 8-2 Figure 8-2 shows a manufacturer's total profit curve. To maximize total profit, the manufacturer should produce ____ units of output.

The total cost of producing one unit of output is $200; two units cost $300, three units $450, and four units $800. Fixed cost is $50. Draw the associated total cost, average cost, and marginal cost curves, placing total cost on one graph and marginal and average cost on a second graph.

When a firm's fixed costs increase it should raise its prices in order to maximize profits.

Sally leaves her $24,000 secretarial position with a company and invests her savings of $15,000 (on which she was earning 6 percent interest)in her own Ready Sec agency. After expenses, her net income was $28,900. Her economic profit was

The demand curve facing a firm is also the firm's

When a firm's fixed cost rises, its total profit curve shifts

Most business people calculate marginal cost and marginal revenue to decide how much to produce.

Marginal analysis is useful in economics, but not in other areas of life.

The demand curve facing Company ABC is perfectly elastic. What is its marginal revenue?

To find its profit-maximizing output level, a firm should operate where

Optimal decisions are made on the basis of

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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