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

If the quantity output and average cost at that output level are known, then it is possible to determine marginal cost for that output level.

At its current level of output, a firm's average cost is $25 and its marginal cost is $20. If the firm increases output by one unit and marginal cost is $22, average cost will be

If your cumulative Grade Point Average (GPA)after two years of college is 3.0, and your grades for the current semester average 3.5, what will happen to your cumulative GPA? Explain the similarity of this example to the case of marginal cost and average cost.

When a firm's fixed cost increases,

If the marginal profit from increasing output by one unit is negative, then to attain an optimum, the firm should

Economists use a model that is a literal description of business' behavior.

The assumption that firms attempt to maximize profits will yield good predictions even if firms sometimes pursue other goals.

Define the following terms completely and concisely. a. Marginal revenue b. Average revenue c. Optimal decision d. Satisficing e. Marginal profit

If the average cost of a product is $10 per unit and the price is $5, the firm is losing money.

Whenever marginal cost is positive, average cost curves are upward sloping.

A firm that decides to make a price cut assumes that marginal profit is negative.

Ben quit his job as an economics professor to become a golf professional. He gave up his salary ($40,000)and invested his retirement fund of $50,000 (which was earning 10 percent interest)in this venture. After all expenses, his net winnings (profit)were $45,000. Ben's economic profits were

Profit is maximized at the output at which marginal revenue equals marginal cost.

If marginal cost of an additional unit of output is greater than average cost, then average cost will rise.

The goal of the business firm is maximization of ____, and the goal of the consumer is maximization of ____.

A firm is producing 2,500 units at its optimal output, with average variable cost per unit of $4 and average fixed cost per unit of $2.50. If sells its output at $8 per unit, total profit is

Economists and accountants use the same definition of profit.

For any firm, price always equals

If the marginal profit of the next unit is negative, the firm should produce more output in order to generate greater profit.

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