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

The rule of equating marginal benefit with marginal cost is proper for economics, but it does not describe the way in which people make non-economic decisions.

For a number of years, General Motors used a pricing strategy designed to maintain at least 40 percent of the American car market.Does this strategy suggest that GM was maximizing profits or pursuing an alternative strategy?

Total revenue cannot be derived from the demand curve or a demand schedule.

Whenever average cost exceeds marginal cost,

The demand curve facing Company ABC is perfectly elastic.What is its marginal revenue?

Profit is maximized at the output at which marginal revenue exceeds marginal cost by the greatest margin.

A firm's total revenue is simply the price of its product multiplied by the quantity sold.

Economists assume that business firms attempt to maximize their profits.

If the marginal profit of the next unit is negative, the firm should produce more output in order to generate greater profit.

If total profit is maximized, then marginal cost must equal marginal revenue.

All business firms should consider their fixed costs in determining the prices they set.

Marginal profit is the profit

The typical total profit graphical presentation is shown as

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

A firm should keep producing output as long as the marginal profit is greater than zero, no matter how small it is.

Define the following terms completely and concisely. a.marginal revenue b.average revenue c.optimal decision d.satisficing e.marginal profit

If the output of a firm is increased by one unit, the revenue addition is called

Total profit is maximized where

In reality, decisions made by firms may not always produce maximum total profit because some executives

Marginal revenue equals the change in total revenue that is earned by selling one more unit of output.