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

Figure 8-2 -Figure 8-2 shows a manufacturer's total profit curve.To maximize her total profit, the manufacturer should produce ____ units of output.

Total revenue

Average revenue is slightly higher than price.

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.

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

Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.

In 1984, British Prime Minister Margaret Thatcher decided to shut down so-called "uneconomic" coal mines owned by the government.The National Union of Mineworkers protested, asserting that there was enough coal in the mines to continue current levels of production for years.Thatcher implicitly argued that her decision was economically sound because, at any practical level of output, for each "uneconomic" mine,

Thomas Edison once complained that he was not making a profit selling light bulbs because his plants were operating 25 percent below capacity.He estimated that he could increase output 25 percent with a 2 percent increase in the cost of production.He sold the 25 percent on the foreign market at a price below what he called the "cost of production." We can deduce that Edison really meant

When a firm's fixed costs increase it should raise its prices in order to maximize profits.

Profit can be maximized only where marginal revenue equals

Table 8-1 -At optimal output, the firm described in Table 8-1 earns a profit of

If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total profit is

A grocery store sells soup for $1.50 a can, or $2.50 for two cans.To a customer, the marginal cost of buying the second can of soup is

If MC > MR,

The marginal cost of Alexa's Guide to Street People and Their Pets is constant at $5.Alexa sells 5,000 copies per year at $20 per copy.She would like to increase readership and hold total profit constant.If the price goes to $15, how many copies must she sell?

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

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

A computer manufacturer sells 1,000 units per month at $500 each.A price cut to $400 is being considered.His marginal cost is constant at $300 per unit.To maintain profits, quantity sold must increase to at least

Once a firm has selected a price for its product, quantity is decided by consumers and their demand curves.

Marginal profit equals the difference between marginal revenue and average cost.