Question 1

What is the law of demand? How do managers use it in decision-making?

Accepted Answer

The law of demand states that all other

Question 2

The demand for a product is given by P = 1,750 - 25Q. If the firm wishes to sell 50 units, each unit should be priced at:

Accepted Answer

A)  $100. 
B)  $200, 
C)  $300. 
D)  $400. 
E)  $500. 
A)  $100. 
B)  $200, 
C)  $300. 
D)  $400. 
E)  $500.

Question 3

Suppose the inverse demand curve of a firm is given by the equation: P = 2,500 - 10Q. Compute the firm's total revenue and marginal revenue, and determine the quantity that maximizes total revenue.

Accepted Answer

R = P × Q = 2,500Q - 10Q². In t

Question 4

How will an increase in price affect the quantity of output sold by a firm? What are the reasons for this change?

Accepted Answer

According to the law of demand, a change

Question 5

The following table shows the total revenue (in dollars) and total cost (in dollars) from the production and sale of different units of a product.
Table 2-1
 $\begin{array} { | c | c | c | c | } 
\hline \text { Price } & \text { Quantity } & \text { Total Revenue } & \text { Total Cost } \
\hline 15 & 1 & 15 & 3 \
\hline 14 & 2 & 28 & 7 \
\hline 13 & 3 & 39 & 12 \
\hline 12 & 4 & 48 & 18 \
\hline 11 & 5 & 55 & 25 \
\hline 10 & 6 & 60 & 33 \
\hline
\end{array}$
-Refer to Table 2-1. What is the profit-maximizing level of output for the firm?

Accepted Answer

A)  3 units 
B)  2 units 
C)  1 unit 
D)  5 units 
E)  6 units 
A)  3 units 
B)  2 units 
C)  1 unit 
D)  5 units 
E)  6 units

Question 6

For a downward-sloping demand curve, the associated marginal revenue curve:

Accepted Answer

A)  coincides with the demand curve. 
B)  lies below and is parallel to the demand curve. 
C)  has twice the slope as the demand curve. 
D)  is positive for all levels of sales. 
E)  is parallel to the quantity axis. 
A)  coincides with the demand curve. 
B)  lies below and is parallel to the demand curve. 
C)  has twice the slope as the demand curve. 
D)  is positive for all levels of sales. 
E)  is parallel to the quantity axis.

Question 7

Given that a firm's inverse demand function is P = 100 - 5Q and total cost is given by C = 550 + 10Q, what is the firm's profit-maximizing level of output?

Accepted Answer

A)  10 units 
B)  15 units 
C)  9 units 
D)  8 units 
E)  5 units 
A)  10 units 
B)  15 units 
C)  9 units 
D)  8 units 
E)  5 units

Question 8

Which of the following correctly defines marginal cost?

Accepted Answer

A)  Marginal cost is the addition made to fixed cost when an extra unit is produced. 
B)  Marginal cost is the additional cost of producing an extra unit of output. 
C)  Marginal cost is the additional cost of increasing the scale of production in the long run. 
D)  Marginal cost is the difference between price and marginal revenue for the last unit sold. 
E)  Marginal cost is the same as the firm's variable cost at all levels of output. 
A)  Marginal cost is the addition made to fixed cost when an extra unit is produced. 
B)  Marginal cost is the additional cost of producing an extra unit of output. 
C)  Marginal cost is the additional cost of increasing the scale of production in the long run. 
D)  Marginal cost is the difference between price and marginal revenue for the last unit sold. 
E)  Marginal cost is the same as the firm's variable cost at all levels of output.

Question 9

Carefully define marginal analysis, and explain how it is useful in managerial economics.

Accepted Answer

Marginal analysis is the process of cons

Question 10

According to the model of the firm, the management's main goal is to:

Accepted Answer

A)  increase revenue from sales. 
B)  maximize profit. 
C)  maximize its market share. 
D)  minimize its variable cost per unit. 
E)  maintain a steady and predictable growth in earnings. 
A)  increase revenue from sales. 
B)  maximize profit. 
C)  maximize its market share. 
D)  minimize its variable cost per unit. 
E)  maintain a steady and predictable growth in earnings.

Question 11

A firm negotiates a new labor contract with a higher average hourly wage. What is the most likely effect of the higher wage on the firm's price and output?

Accepted Answer

A)  Neither price nor output will be affected. 
B)  Price will increase but output will not change. 
C)  Both price and output will increase. 
D)  Price will not change but output will decrease. 
E)  Price will increase and output will decrease. 
A)  Neither price nor output will be affected. 
B)  Price will increase but output will not change. 
C)  Both price and output will increase. 
D)  Price will not change but output will decrease. 
E)  Price will increase and output will decrease.

Question 12

Which of the following is true of a firm facing a downward sloping demand curve?

Accepted Answer

A)  In order to sell more units, the firm needs to lower its price. 
B)  A price cut will reduce total revenue. 
C)  The firm's total revenue and price are directly correlated. 
D)  The marginal revenue from each unit sold is constant. 
E)  The firm faces a constant marginal cost curve. 
A)  In order to sell more units, the firm needs to lower its price. 
B)  A price cut will reduce total revenue. 
C)  The firm's total revenue and price are directly correlated. 
D)  The marginal revenue from each unit sold is constant. 
E)  The firm faces a constant marginal cost curve.

Question 13

To maximize profit, the firm should set output at the level where:

Accepted Answer

A)  the average cost per unit is minimized. 
B)  average revenue just equals average cost. 
C)  marginal cost equals zero. 
D)  marginal revenue is equal to marginal cost. 
E)  marginal revenue equals zero. 
A)  the average cost per unit is minimized. 
B)  average revenue just equals average cost. 
C)  marginal cost equals zero. 
D)  marginal revenue is equal to marginal cost. 
E)  marginal revenue equals zero.

Question 14

A firm faces the demand curve, P = 80 - 3Q, and has the cost equation: C = 200 + 20Q, where P = price, C = total cost, and Q = quantity.
(a) Find the optimal quantity and price for the firm.
(b) Now suppose that the demand for the firm’s product changes to: P = 110 – 3Q. Find thenew optimal quantity and price. Has there been an increase or a decrease in demand?
Explain.

Accepted Answer

Given the new price equation, P = 110 -

Question 15

According to the law of demand, if a firm reduces the price of its good:

Accepted Answer

A)  consumers in the market will demand more units of the good. 
B)  some consumers will exit the market. 
C)  consumers will demand fewer units than before the price cut. 
D)  the quantity of goods produced and sold by the firm will decline. 
E)  competing firms will reduce prices. 
A)  consumers in the market will demand more units of the good. 
B)  some consumers will exit the market. 
C)  consumers will demand fewer units than before the price cut. 
D)  the quantity of goods produced and sold by the firm will decline. 
E)  competing firms will reduce prices.

Question 16

The following table shows the total revenue and total cost (in dollars) from different sales volumes of the good.
Table 2-1
 $\begin{array} { | c | c | c | c | } 
\hline \text { Price } & \text { Quantity } & \text { Total Revenue } & \text { Total Cost } \
\hline 15 & 1 & 15 & 3 \
\hline 14 & 2 & 28 & 7 \
\hline 13 & 3 & 39 & 12 \
\hline 12 & 4 & 48 & 18 \
\hline 11 & 5 & 55 & 25 \
\hline 10 & 6 & 60 & 33 \
\hline
\end{array}$

-Refer to Table 2-1. What is the firm's profit from selling 3 units of the good?

Accepted Answer

A)  $13 
B)  $11 
C)  $12 
D)  $39 
E)  $27 
A)  $13 
B)  $11 
C)  $12 
D)  $39 
E)  $27

Question 17

Which of the following correctly defines marginal revenue?

Accepted Answer

A)  Marginal revenue is the price at which the firm sells the last unit of the good. 
B)  Marginal revenue is the change in revenue from a unit increase in the price of the good. 
C)  Marginal revenue is the additional revenue from a unit increase in output and sales. 
D)  Marginal revenue is the additional revenue earned from an increase in demand for the good. 
E)  Marginal revenue is the difference between price and marginal cost for the last unit sold. 
A)  Marginal revenue is the price at which the firm sells the last unit of the good. 
B)  Marginal revenue is the change in revenue from a unit increase in the price of the good. 
C)  Marginal revenue is the additional revenue from a unit increase in output and sales. 
D)  Marginal revenue is the additional revenue earned from an increase in demand for the good. 
E)  Marginal revenue is the difference between price and marginal cost for the last unit sold.

Question 18

Suppose a firm's inverse demand function is P = 40 - 8Q. What is the firm's revenue function?

Accepted Answer

A)  R = 40Q - 8Q2 
B)  R = 40 - 16Q 
C)  R = -8Q 
D)  R = 40/Q - 8 
E)  R = 40Q - 4Q2 
A)  R = 40Q - 8Q2 
B)  R = 40 - 16Q 
C)  R = -8Q 
D)  R = 40/Q - 8 
E)  R = 40Q - 4Q2

Question 19

Night Timers is a small company manufacturing glow-in-the-dark products. One of the hottest items the engineering department has developed is adhesive tape that can be applied to walls and floors. Night Timers' chief engineer anticipates that the product will be sold in ten-foot rolls. At present, the company's maximum production capacity is 140,000 rolls per year. The engineer believes the cost function to be described by C = $50,000 + 0.25Q, where C is total cost and Q is number of rolls (The high fixed costs represent development cost and tooling to prepare coating equipment). Night Timers' president seeks to establish a price that maximizes profit (since she is the chief stockholder). She thinks that the firm should be able to sell at least 125,000 rolls of tape per year.
(a) If Night Timers plans to sell 125,000 rolls per year, what is the necessary price if the firm is to break even? What if it can only sell 100,000?
(b) The marketing manager forecasts demand for the tape to be: Q = 350,000 - 200,000P.Find the firm's profit-maximizing output and price.
(c) If the estimated demand as given by Q = 350,000 - 200,000P is realized in the first year of production, should the company consider expanding capacity? Explain.

Accepted Answer

The relevant question is whether the inc

Question 20

Assume that Burger King, a fast food chain, enters into a franchise agreement. The royalty paid to Burger King by the franchisee is calculated as a percentage of the franchisee's revenue. Given that the franchisee faces a downward-sloping demand curve, which of the following is likely to be true?

Accepted Answer

A)  The franchisee's revenue-maximizing output will be greater than its profit-maximizing output. 
B)  To maximize revenue, Burger King will want the franchisee to produce at the level where total revenue is positive but falling. 
C)  The franchisee will produce at the level where the slope of the total revenue curve is zero in order to maximize profits. 
D)  The profit-maximizing level of output for the franchisee will be at the level where marginal revenue is less than marginal cost. 
E)  To maximize revenue, Burger King will want the franchisee to produce at the level where marginal revenue equals marginal cost. 
A)  The franchisee's revenue-maximizing output will be greater than its profit-maximizing output. 
B)  To maximize revenue, Burger King will want the franchisee to produce at the level where total revenue is positive but falling. 
C)  The franchisee will produce at the level where the slope of the total revenue curve is zero in order to maximize profits. 
D)  The profit-maximizing level of output for the franchisee will be at the level where marginal revenue is less than marginal cost. 
E)  To maximize revenue, Burger King will want the franchisee to produce at the level where marginal revenue equals marginal cost.

What is the law of demand? How do managers use it in decision-making?

The demand for a product is given by P = 1,750 - 25Q. If the firm wishes to sell 50 units, each unit should be priced at:

Suppose the inverse demand curve of a firm is given by the equation: P = 2,500 - 10Q. Compute the firm's total revenue and marginal revenue, and determine the quantity that maximizes total revenue.

How will an increase in price affect the quantity of output sold by a firm? What are the reasons for this change?

For a downward-sloping demand curve, the associated marginal revenue curve:

Given that a firm's inverse demand function is P = 100 - 5Q and total cost is given by C = 550 + 10Q, what is the firm's profit-maximizing level of output?

Which of the following correctly defines marginal cost?

Carefully define marginal analysis, and explain how it is useful in managerial economics.

According to the model of the firm, the management's main goal is to:

A firm negotiates a new labor contract with a higher average hourly wage. What is the most likely effect of the higher wage on the firm's price and output?

Which of the following is true of a firm facing a downward sloping demand curve?

To maximize profit, the firm should set output at the level where:

According to the law of demand, if a firm reduces the price of its good:

Which of the following correctly defines marginal revenue?

Suppose a firm's inverse demand function is P = 40 - 8Q. What is the firm's revenue function?

Assume that Burger King, a fast food chain, enters into a franchise agreement. The royalty paid to Burger King by the franchisee is calculated as a percentage of the franchisee's revenue. Given that the franchisee faces a downward-sloping demand curve, which of the following is likely to be true?

Introduction to Economic Decision Making

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Linear Programming

Auctions and Competitive Bidding Available Online

Filters

Exam 2: Optimal Decisions Using Marginal Analysis

What is the law of demand? How do managers use it in decision-making?

The demand for a product is given by P = 1,750 - 25Q. If the firm wishes to sell 50 units, each unit should be priced at:

Suppose the inverse demand curve of a firm is given by the equation: P = 2,500 - 10Q. Compute the firm's total revenue and marginal revenue, and determine the quantity that maximizes total revenue.

How will an increase in price affect the quantity of output sold by a firm? What are the reasons for this change?

For a downward-sloping demand curve, the associated marginal revenue curve:

Given that a firm's inverse demand function is P = 100 - 5Q and total cost is given by C = 550 + 10Q, what is the firm's profit-maximizing level of output?

Which of the following correctly defines marginal cost?

Carefully define marginal analysis, and explain how it is useful in managerial economics.

According to the model of the firm, the management's main goal is to:

A firm negotiates a new labor contract with a higher average hourly wage. What is the most likely effect of the higher wage on the firm's price and output?

Which of the following is true of a firm facing a downward sloping demand curve?

To maximize profit, the firm should set output at the level where:

According to the law of demand, if a firm reduces the price of its good:

Which of the following correctly defines marginal revenue?

Suppose a firm's inverse demand function is P = 40 - 8Q. What is the firm's revenue function?

Assume that Burger King, a fast food chain, enters into a franchise agreement. The royalty paid to Burger King by the franchisee is calculated as a percentage of the franchisee's revenue. Given that the franchisee faces a downward-sloping demand curve, which of the following is likely to be true?

Introduction to Economic Decision Making

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Linear Programming

Auctions and Competitive Bidding Available Online

Filters