Question 1

Is it a good thing to go to a point where marginal profit is zero?
 Explain.

Accepted Answer

A common misunderstanding about marginal

Question 2

Given a demand curve, explain how total revenue may be calculated.

Accepted Answer

a demand curve consists of the prices an

Question 3

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest) in a new real estate business.Her accountant predicted a $60,000 revenue the first year.Her husband, an economist, forecast her profit to be

Accepted Answer

A) $10,000. 
B) $28,000. 
C) $32,000. 
D) $60,000. 
A) $10,000. 
B) $28,000. 
C) $32,000. 
D) $60,000.

Question 4

A firm can always increase its output by one unit at a marginal cost of $10.Its marginal cost curve is

Accepted Answer

A) a horizontal line. 
B) a vertical line. 
C) a ray with slope equal to 10. 
D) exactly one-tenth as steep as its total cost curve. 
A) a horizontal line. 
B) a vertical line. 
C) a ray with slope equal to 10. 
D) exactly one-tenth as steep as its total cost curve.

Question 5

An airline is considering adding a flight from Chicago to Sioux Falls.Total cost of the flight is $5,500.Variable cost is $2,000.Revenue from the flight is expected to be $3,000.Should the flight be added?

Accepted Answer

A) No, the revenue ($3,000) is below the cost ($5,500.) 
B) No, the addition to profit is very small and not worth the effort. 
C) Yes, profit increases by $1,000 ($3,000 − $2,000.) 
D) Yes, profit increases by $3,000. 
A) No, the revenue ($3,000) is below the cost ($5,500.) 
B) No, the addition to profit is very small and not worth the effort. 
C) Yes, profit increases by $1,000 ($3,000 − $2,000.) 
D) Yes, profit increases by $3,000.

Question 6

Business people often use "hunches" and intuition to make decisions regarding what to produce.

Accepted Answer

A) True 
 B)False

Question 7

-In Table 8-2, the profit-maximizing level of output is

Accepted Answer

A) 6. 
B) 10. 
C) 16. 
D) 21. 
A) 6. 
B) 10. 
C) 16. 
D) 21.

Question 8

Economic profit of a decision in question equals

Accepted Answer

A) accounting profit of the decision in question + its opportunity cost. 
B) accounting profit of the decision in question − accounting profit of the best available alternative. 
C) accounting profit of the decision in question + its opportunity cost + overheads. 
D) its opportunity cost + accounting profit of the best available alternative. 
A) accounting profit of the decision in question + its opportunity cost. 
B) accounting profit of the decision in question − accounting profit of the best available alternative. 
C) accounting profit of the decision in question + its opportunity cost + overheads. 
D) its opportunity cost + accounting profit of the best available alternative.

Question 9

Sally leaves her $24,000 secretarial position with a company and invests her savings of $15,000 (on which she was earning 6 percent interest) in her own Ready Sec agency.After expenses, her net income was $28,900.Her economic profit was

Accepted Answer

A) $4,900. 
B) $4,000. 
C) $28,900. 
D) −$10,100. 
A) $4,900. 
B) $4,000. 
C) $28,900. 
D) −$10,100.

Question 10

Do firms really seek to maximize profits?

Accepted Answer

Profit maximization is difficult because

Question 11

Table 8-3
  
-Explain how much the firm shown in Table 8-3 should produce, first using total profit and then using marginal analysis.

Accepted Answer

Total profit is total revenue minus tota

Question 12

By definition, a firm that practices satisficing

Accepted Answer

A) maximizes its sales, not its profits. 
B) makes acceptable decisions, though not necessarily optimal ones. 
C) satisfies government guidelines instead of consumer demands. 
D) minimizes the cost of gathering enough information to make an optimal decision. 
A) maximizes its sales, not its profits. 
B) makes acceptable decisions, though not necessarily optimal ones. 
C) satisfies government guidelines instead of consumer demands. 
D) minimizes the cost of gathering enough information to make an optimal decision.

Question 13

"As long as total revenue slopes up, marginal revenue must slope up also." Explain whether this statement is true or false.

Accepted Answer

Marginal revenue is the slope

Question 14

The assumption that firms attempt to maximize profits will yield good predictions even if firms sometimes pursue other goals.

Accepted Answer

A) True 
 B)False

Question 15

If marginal cost is rising, then average cost must be rising.

Accepted Answer

A) True 
 B)False

Question 16

The term "satisficing" for decision-making behavior by many firms was coined by

Accepted Answer

A) Milton Friedman. 
B) Adam Smith. 
C) Herbert Simon. 
D) Alan Greenspan. 
A) Milton Friedman. 
B) Adam Smith. 
C) Herbert Simon. 
D) Alan Greenspan.

Question 17

To find its profit-maximizing output level, a firm should operate where

Accepted Answer

A) AVC = MC. 
B) MC = MR. 
C) TFC = TVC. 
D) AFC = AVC. 
A) AVC = MC. 
B) MC = MR. 
C) TFC = TVC. 
D) AFC = AVC.

Question 18

If average cost is falling, then marginal cost must be falling.

Accepted Answer

A) True 
 B)False

Question 19

Marginal profit is the addition to a firm's total profit from a

Accepted Answer

A) $1 change in its price. 
B) one-unit change in its output. 
C) reduction in total cost. 
D) reduction in marginal cost. 
A) $1 change in its price. 
B) one-unit change in its output. 
C) reduction in total cost. 
D) reduction in marginal cost.

Question 20

Total profit is maximized if the slope of the total profit curve is

Accepted Answer

A) positive. 
B) negative. 
C) increasing. 
D) zero. 
A) positive. 
B) negative. 
C) increasing. 
D) zero.

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

Is it a good thing to go to a point where marginal profit is zero? Explain.

Given a demand curve, explain how total revenue may be calculated.

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest) in a new real estate business.Her accountant predicted a $60,000 revenue the first year.Her husband, an economist, forecast her profit to be

A firm can always increase its output by one unit at a marginal cost of $10.Its marginal cost curve is

An airline is considering adding a flight from Chicago to Sioux Falls.Total cost of the flight is $5,500.Variable cost is $2,000.Revenue from the flight is expected to be $3,000.Should the flight be added?

Business people often use "hunches" and intuition to make decisions regarding what to produce.

-In Table 8-2, the profit-maximizing level of output is

Economic profit of a decision in question equals

Sally leaves her $24,000 secretarial position with a company and invests her savings of $15,000 (on which she was earning 6 percent interest) in her own Ready Sec agency.After expenses, her net income was $28,900.Her economic profit was

Do firms really seek to maximize profits?

Table 8-3 -Explain how much the firm shown in Table 8-3 should produce, first using total profit and then using marginal analysis.

By definition, a firm that practices satisficing

"As long as total revenue slopes up, marginal revenue must slope up also." Explain whether this statement is true or false.

The assumption that firms attempt to maximize profits will yield good predictions even if firms sometimes pursue other goals.

If marginal cost is rising, then average cost must be rising.

The term "satisficing" for decision-making behavior by many firms was coined by

To find its profit-maximizing output level, a firm should operate where

If average cost is falling, then marginal cost must be falling.

Marginal profit is the addition to a firm's total profit from a

Total profit is maximized if the slope of the total profit curve is

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

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