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

Company A manufactures a single automotive component.It had total revenue of $100,000 and an economic profit of $20,000.What is the price of the component it manufactures?

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

Profit maximization occurs when MC = MR.

The total cost curve generally has

Total cost equals average cost multiplied by the quantity of output.

An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

In the short run, which are most important in determining changes in output?

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

In the case study in the text involving calculator production, the fact that each calculator produced added $10.30 to cost and $12 to revenue made clear the value of ____ in determining whether or not to suspend production.

Firms may reasonably make a decision to cut prices if

Optimal decisions are made on the basis of

Profit maximization is

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

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

Accounting profit is usually larger than economic profit.

If a firm's marginal profit is negative, it should reduce its output level.

Any change in a firm's fixed costs will change its profit-maximizing level of output.

If fixed cost rises,

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 then of ordering a hamburger instead of a hot dog is

Price and quantity decisions made by a company have vital influences on