Question 1

A firm should use marginal analysis when making a price-output decision.

Accepted Answer

A) True 
 B)False

Question 2

Marginal revenue is the addition to a firm's revenue from

Accepted Answer

A) a $1 change in price. 
B) a one-unit change in output. 
C) the sale of inferior output. 
D) a $1 reduction in marginal cost. 
A) a $1 change in price. 
B) a one-unit change in output. 
C) the sale of inferior output. 
D) a $1 reduction in marginal cost.

Question 3

If a firm's average cost is currently $100, and the marginal cost is $95, then the average cost is currently falling.

Accepted Answer

A) True 
 B)False

Question 4

Table 8-1
  
-At optimal output, the firm described in Table 8-1 sells its output at a price of

Accepted Answer

A) $5.40. 
B) $6.25. 
C) $7. 
D) $8. 
A) $5.40. 
B) $6.25. 
C) $7. 
D) $8.

Question 5

Once the profit-maximizing output where MR = MC is determined, price is set by

Accepted Answer

A) adding a standard markup percentage to marginal cost. 
B) the demand curve. 
C) making it equal to MR = MC. 
D) subtracting the marginal cost from total revenue. 
A) adding a standard markup percentage to marginal cost. 
B) the demand curve. 
C) making it equal to MR = MC. 
D) subtracting the marginal cost from total revenue.

Question 6

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).

Accepted Answer

The cost of the beverage includes the co

Question 7

Average cost can be thought of as the cost per unit.

Accepted Answer

A) True 
 B)False

Question 8

Figure 8-4
  
-In Figure 8-4 at output level 2,

Accepted Answer

A) MR > MC. 
B) the slope of the total profit curve is negative. 
C) there are negative profits. 
D) marginal revenue is rising compared to output. 
A) MR > MC. 
B) the slope of the total profit curve is negative. 
C) there are negative profits. 
D) marginal revenue is rising compared to output.

Question 9

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.

Accepted Answer

The answer rests on the marginal cost an

Question 10

Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) $45,000. 
B) $5,000. 
C) $2,000. 
D) zero. 
A) $45,000. 
B) $5,000. 
C) $2,000. 
D) zero.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Table 8-1
  
-To maximize its profits, the firm described in Table 8-1 should produce ____ unit(s) of output.

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 14

If at an output of 4,000 units Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should

Accepted Answer

A) reduce output to maximize total profit. 
B) increase output until marginal profit falls to zero. 
C) do whatever is necessary to increase marginal profit. 
D) There is not enough information to make a decision. 
A) reduce output to maximize total profit. 
B) increase output until marginal profit falls to zero. 
C) do whatever is necessary to increase marginal profit. 
D) There is not enough information to make a decision.

Question 15

In arriving at the quantity of output and price of its product, a company

Accepted Answer

A) chooses either output or price, and consumer demand determines the other. 
B) has no control over either quantity or price. 
C) makes two decisions by setting both optimal output and optimal price. 
D) generally leaves both quantity and price decisions to consumers. 
A) chooses either output or price, and consumer demand determines the other. 
B) has no control over either quantity or price. 
C) makes two decisions by setting both optimal output and optimal price. 
D) generally leaves both quantity and price decisions to consumers.

Question 16

Table 8-1
  
-The firm described in Table 8-1 has a fixed cost of ____ at its optimal level of output.

Accepted Answer

A) 2 
B) 6 
C) 10 
D) 26 
A) 2 
B) 6 
C) 10 
D) 26

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

The demand curve for a firm's product is also the curve showing

Accepted Answer

A) total revenue. 
B) marginal revenue. 
C) average revenue. 
D) average profits. 
A) total revenue. 
B) marginal revenue. 
C) average revenue. 
D) average profits.

Question 19

Dunston Military Academy has an annual deficit of $250,000.Its 1,000 students pay tuition of $10,000 each per year.The economics faculty has recommended solving the problem by recruiting additional athletes with $5,000 scholarships.Each additional athlete will cost the school $2,500 (equipment, etc.).Assuming the academy agrees, how many athletes are needed to eliminate the deficit?

Accepted Answer

A) Zero, the deficit cannot be eliminated by giving more scholarships. 
B) 25 
C) 50 
D) 100 
A) Zero, the deficit cannot be eliminated by giving more scholarships. 
B) 25 
C) 50 
D) 100

Question 20

What is the value of marginal profit at the profit-maximizing output?

Accepted Answer

Marginal profit is the difference betwee

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

A firm should use marginal analysis when making a price-output decision.

Marginal revenue is the addition to a firm's revenue from

If a firm's average cost is currently $100, and the marginal cost is $95, then the average cost is currently falling.

Table 8-1 -At optimal output, the firm described in Table 8-1 sells its output at a price of

Once the profit-maximizing output where MR = MC is determined, price is set by

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).

Average cost can be thought of as the cost per unit.

Figure 8-4 -In Figure 8-4 at output level 2,

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.

Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.

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

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

Table 8-1 -To maximize its profits, the firm described in Table 8-1 should produce ____ unit(s) of output.

If at an output of 4,000 units Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should

In arriving at the quantity of output and price of its product, a company

Table 8-1 -The firm described in Table 8-1 has a fixed cost of ____ at its optimal level of output.

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

The demand curve for a firm's product is also the curve showing

What is the value of marginal profit at the profit-maximizing output?

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

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Filters