Exam 8: How Firms Make Decisions: Profit Maximization

William quits his job where he earns an annual salary of $75,000 and opens a management consulting business,charging an hourly rate of $120.He works out of his home,converting a storeroom into an office.(Zoning restrictions prevent William from renting out the room. )Start-up costs are financed by selling $15,000 worth of bonds he inherited that were earning annual interest payments of $900.During his first year,William incurs expenses for supplies and utilities that total $3,500.If William bills 500 hours of consulting time in the first year,he earns an economic profit equal to

When marginal revenue is positive,total revenue must rise as output increases.

What is true only at the output level where price equals average total cost?

-Henry decides to quit his job (earning $50,000 per year),take his $60,000 in savings,and open a dry cleaning store.Figure 8-1 shows the revenues and expenditures for his first year of operation.If Henry could have earned $3,000 in interest on the money used to open the store,his economic profit would have been

Under the total revenue and total cost approach to profit maximization,

Profit maximization occurs at the quantity where marginal cost equals marginal revenue.

A firm's total revenue

To develop a useful picture of a firm's behavior,economists assume that the

-Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.Jonathan's maximum profit is

For every firm that faces a downward-sloping demand curve for its output,

In order to maximize its profit in the short run,an airline should offer an additional flight whenever

Many gift shops along the ocean shut down during the winter because

Under the total revenue and total cost approach to profit maximization,

In the long run,if a firm's total cost exceeds its total revenue at all output levels,it should

Every firm is constrained by the demand curve for the product it produces.

The demand curve facing the firm has been estimated as follows: - Which of the following statements about the firm's total revenue is correct?

-Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.If Jonathan sells 5 riding mowers per day,he will earn an economic profit of

Myron worked at a factory where he earned $20,000 per year.He quit his job and opened a bumper sticker business.After one year,his business earned $60,000 in sales revenue and he incurred $30,000 in direct business expenses.If he received no salary from the new business,what is his accounting profit?

The change in total profit when a firm increases its output by one unit equals

Whenever a decrease in output leads to an increase in profit,the