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

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe if he orders a hamburger, instead of a hot dog, is

Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).

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

A firm can always increase its output by one unit at a marginal cost of $10. Its marginal cost curve is

A firm has $200,000 to spend on either direct sales or advertising. Suppose further that if the $200,000 is spent on direct sales, it will bring in an accounting profit of $40,000. Instead, the (accounting)profit it could obtain from a $200,000 investment in advertising is $X. Compare the profitability of the two options if (a)X = 50,000, (b)X = 30,000, or (c)X = 40,000.

Tour companies and cruise lines often offer last minute fares that are far below the prices paid by customers who have booked their trips far in advance. Use marginal analysis to explain this pricing tactic.

Thomas Edison once said that he began making real profit on light bulbs when he dumped his surplus on the European market at less than the "cost of production." From this we can deduce Edison

"Satisficing" rather than "maximizing" primarily emerges under conditions where

A cellphone maker sells 6,000 units per month at $600 each. The firm is investigating whether a price cut to $500 is warranted. The firm's marginal cost of production of each phone is a constant $400 per unit. To maintain profits at their current level, quantity sold must increase to at least

If a firm's fixed cost (overhead)increases, what happens to its profit-maximizing price and output?

Herbert Simon has concluded that decision making in industry is often best described as

If marginal cost is less than average cost, average cost must fall when more units are produced.

Marginal profit is the profit

Profits will be maximized when the slope of the total revenue curve and the slope of the total cost curve are equal.

The typical total profit graphical presentation is shown as

Bob goes to his favorite hot dog stand, which is offering one hot dog for $2.50 or two for $4.00. Bob's marginal cost of a second hot dog is

Marginal, average, and total figures are bound together. If any two are known, the third can be calculated.

Firms need to know the shape of a demand curve to use marginal analysis.

If a profit-maximizing firm's fixed cost of producing widgets falls,

Explain the rules for finding maximum profit using total revenue and total cost and marginal revenue and marginal cost.