Deck 2: Economic Optimization

Question 1

The slope of a straight line from the origin to the total profit curve indicates:

A) marginal profit at that point.
B) an inflection point.
C) average profit at that point.
D) total profit at that point.

Answer 1

C

Question 2

An equation is:

A) an analytical expression of functional relationships.
B) a visual representation of data.
C) a table of electronically stored data.
D) a list of economic data.
E) Demand and Supply

Answer 2

A

Question 3

Total cost minimization occurs at the point where:

A) MC = 0
B) MC = AC
C) AC = 0
D) Q = 0

Answer 3

D

Question 4

Which of the following short run strategies should a manager select to obtain the highest degree of sales penetration?

A) maximize revenues.
B) minimize average costs.
C) minimize total costs.
D) maximize profits.

Question 5

The optimal decision produces:

A) maximum revenue.
B) maximum profits.
C) minimum average costs.
D) a result consistent with managerial objectives.

Question 6

Profit per unit is rising when marginal profit is:

A) greater than average profit per unit.
B) less than average profit per unit.
C) equal to average profit per unit.
D) positive.

Question 7

The optimal output decision:

A) minimizes the marginal cost of production.
B) minimizes production costs.
C) is most consistent with managerial objectives.
D) minimizes the average cost of production.

Question 8

If total revenue increases at a constant rate as output increases, marginal revenue:

A) is greater than average revenue.
B) is less than average revenue.
C) is greater than average revenue at low levels of output and less than average revenue at high levels of output.
D) equals average revenue.

Question 9

Incremental profit is:

A) the change in profit that results from a unitary change in output.
B) total revenue minus total cost.
C) the change in profit caused by a given managerial decision.
D) the change in profits earned by the firm over a brief period of time.

Question 10

Average cost minimization occurs at the point where:

A) MC = 0
B) MC = AC
C) AC = 0
D) Q = 0

Question 11

Marginal profit equals:

A) the change in total profit following a one-unit change in output.
B) the change in total profit following a managerial decision.
C) average revenue minus average cost.
D) total revenue minus total cost.

Question 12

Marginal profit equals average profit when:

A) marginal profit is maximized.
B) average profit is maximized.
C) marginal profit equals marginal cost.
D) the profit minimizing output is produced.

Question 13

Total revenue is maximized at the point where marginal:

A) revenue equals zero.
B) cost equals zero.
C) revenue equals marginal cost.
D) profit equals zero.

Question 14

The breakeven level of output occurs where:

A) marginal cost equals average cost.
B) marginal profit equals zero.
C) total profit equals zero.
D) marginal cost equals marginal revenue.

Question 15

If P = $1,000 - $4Q:

A) MR = $1,000 - $4Q
B) MR = $1,000 - $8Q
C) MR = $1,000Q - $4
D) MR = $250 - $0.25P

Question 16

The comprehensive impact resulting from a decision is the:

A) gain or loss associated with a given managerial decision.
B) change in total cost.
C) change in total profit.
D) incremental change.

Question 17

Total revenue increases at a constant rate as output increases when average revenue:

A) increases as output increases.
B) increases and then decreases as output increases.
C) exceeds price.
D) is constant.

Question 18

Marginal cost is rising when marginal cost is:

A) positive.
B) less than average cost.
C) greater than average cost.
D) none of these.

Question 19

Inflection is:

A) a line that touches but does not intersect a given curve.
B) a point of maximum slope.
C) a measure of the steepness of a line.
D) an activity level that generates highest profit.

Question 20

The incremental profit earned from the production and sale of a new product will be higher if:

A) the costs of materials needed to produce the new product increase.
B) excess capacity can be used to produce the new product.
C) existing facilities used to produce the new product must be modified.
D) the revenues earned from existing products decrease.

Question 21

An optimal decision:

A) minimizes output cost.
B) maximizes profits.
C) produces the result most consistent with decision maker objectives.
D) maximizes product quality.

Question 22

Marginal Analysis: Tables. Gabrielle Solis is a regional sales representative for Specialty Books, Inc., and sells textbooks to universities in Midwestern states. Solis goal is to maximize total monthly commission income, which is figured at 10% of gross sales. In reviewing monthly experience over the past year, Solis found the following relations between days spent in each state and monthly sales generated:

A. Construct a table showing Solis marginal sales per day in each state.
B. If administrative duties limit Solis to only 15 selling days per month, how should he spend them?
C. Calculate Solis maximum monthly commission income.

Question 23

At the profit-maximizing level of output:

A) marginal profit equals zero.
B) marginal profit is less than average profit.
C) marginal profit exceeds average profit.
D) marginal cost equals average cost.

Question 24

Marginal Analysis. Consider the price (P) and output (Q) data in the following table.

A. Calculate the related total revenue (TR), marginal revenue (MR), and average revenue (AR) figures.
B. At what output level is revenue maximized?

Question 25

When marginal profit equals zero:

A) the firm can increase profits by increasing output.
B) the firm can increase profits by decreasing output.
C) marginal revenue equals average revenue.
D) profit is maximized.

Question 26

If profit is to rise as output expands, then marginal profit must be:

A) falling.
B) constant.
C) positive.
D) rising.

Question 27

Profit Maximization: Equations. Dot.com Products, Inc., offers storage containers for fine china on the Internet. The company is the low-cost retailer of these quilted boxes with fixed costs of $480,000 per year, plus variable costs of $30 for each box. Annual demand and marginal revenue relations for the company are:

A. Calculate the profit-maximizing activity level.
B. Calculate the company's optimal profit and return-on-sales levels.

Question 28

Marginal Analysis: Tables. Lynette Scavo is a telemarketing manager for Laser Supply, Inc., which sells replacement chemicals to businesses with copy machines. Scavo's goal is to maximize total monthly commission income, which is figured at 5% of gross sales of per telemarketer. In reviewing monthly experience over the past year, Scavo found the following relations between worker-hours spent in each market segment and monthly sales generated.

A. Construct a table showing Scavo's marginal sales per 100 worker-hours in each market segment.
B. Scavo employs telemarketers for 1,000 worker-hours per month, how should their hours be allocated among market segments?
C. Calculate Scavo's maximum monthly commission income.

Question 29

A. To maximize the value of the firm, management should always produce the level of output that maximizes short run profit.
B. Average profit equals the slope of the line tangent to the total product function at each level of output.
C. Marginal profit equals zero at the profit maximizing level of output.
D. To maximize profit, total revenue must also be maximized.
E. Marginal cost equals average cost at the average cost minimizing level of output.

Question 30

Profit Maximization. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (p), and marginal profit (Mp) in the following table.

A. At what output (Q) level is profit maximized?
B. At what output (Q) level is revenue maximized?
C. Discuss any differences in your answers to parts A and B.

Question 31

Marginal Analysis: Tables. Bree Van De Camp is a regional sales representative for Snappy Tools, Inc., and sells hand tools to auto mechanics in New England states. Van De Camp's goal is to maximize total monthly commission income, which is figured at 6.25% of gross sales. In reviewing experience over the past year, Van De Camp found the following relations between days spent in each state and weekly sales generated.

A. Construct a table showing Van De Camp's marginal sales per day in each state.
B. If Van De Camp is limited to 6 selling days per week, how should they be spent?
C. Calculate Van De Camp's maximum weekly commission income.

Question 32

Marginal Analysis. Evaluate the price (P) and the output (Q) data in the following table.


A. Calculate the related total revenue (TR), marginal revenue (MR), and average revenue (AR) figures.
B. At what output level is revenue maximized?

Question 33

If average profit increases with output marginal profit must be:

A) decreasing.
B) greater than average profit.
C) less than average profit.
D) increasing.

Question 34

Marginal Analysis: Tables. Susan Mayer is a sales representative for the Desperate Insurance Company, and sells life insurance policies to individuals in the Phoenix area. Mayer's goal is to maximize total monthly commission income, which is figured at 10% of gross sales. In reviewing monthly experience over the past year, Mayer found the following relations between days spent in each city and monthly sales generated.


A. Construct a table showing Mayer's marginal sales per day in each city.
B. If administrative duties limit Mayer to only 10 selling days per month, how should she spend them?
C. Calculate Mayer's maximum monthly commission income.

Question 35

Profit Maximization. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (p), and marginal profit (Mp) in the following table.


A. At what output (Q) level is profit maximized?
B. At what output (Q) level is revenue maximized?
C. Discuss any differences in your answers to parts A and B.

Question 36

Revenue Maximization. Assume the following output (Q) and price (P) data.

A. At what output level is revenue maximized?
B. Why is marginal revenue less than average revenue at each price level?

Question 37

Profit Maximization. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (p), and marginal profit (Mp) in the following table.

A. At what output (Q) level is profit maximized (or losses minimized)? Explain.
B. At what output (Q) level is revenue maximized?

Question 38

A. Given a downward-sloping demand curve and positive marginal costs, profit-maximizing firms will always sell less output and at higher prices than will revenue-maximizing firms.
B. Profits will be maximized when marginal revenue equals marginal cost.
C. Total profit is the difference between total revenue and total cost and will always exceed zero at the profit-maximizing activity level.
D. Marginal cost must be less than average cost at the average cost minimizing output level.
E. The demand curve will be downward sloping if marginal revenue is less than price.

Question 39

Profit Maximization. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), profit (p), and marginal profit (Mp) in the following table.

A. At what output (Q) level is profit maximized?
B. At what output (Q) level is revenue maximized?
C. Discuss any differences in your answers to parts A and B.

Question 40

Profit Maximization: Equations. Steam Cleanin, Inc., offers professional carpet cleaning to home owners in Huntsville, Alabama. The company is the low-cost provider in this market with fixed costs of $168,750 per year, plus variable costs of $10 per room of carpet cleaning. Annual demand and marginal revenue relations for the company are:

A. Calculate the profit-maximizing activity level.
B. Calculate the company's optimal profit and return-on-sales levels.

Question 41

Average Cost Minimization. Better Buys, Inc., is a leading discount retailer of wide-screen digital and cable-ready plasma HDTVs. Revenue and cost relations for a popular 55-inch model are:

Question 42

Revenue Maximization. Restaurant Marketing Services, Inc., offers affinity card marketing and monitoring systems to fine dining establishments nationwide. Fixed costs are $600,000 per year. Sponsoring restaurants are paid $60 for each card sold, and card printing and distribution costs are $3 per card. This means that RMS's marginal costs are $63 per card. Based on recent sales experience, the estimated demand curve and marginal revenue relations for are:

Question 43

Average Cost Minimization. Commercial Recording, Inc., is a manufacturer and distributor of reel-to-reel recording decks for commercial recording studios. Revenue and cost relations are:

Question 44

Optimal Profit. Hardwood Cutters offers seasoned, split fireplace logs to consumers in Toledo, Ohio. The company is the low-cost provider of firewood in this market with fixed costs of $10,000 per year, plus variable costs of $25 for each cord of firewood. Annual demand and marginal revenue relations for the company are:

A. Calculate the profit-maximizing activity level.
B. Calculate the company's optimal profit and return-on-sales levels.

Question 45

Not-for-Profit Analysis. The Indigent Care Center, Inc., is a private, not-for-profit, medical treatment center located in Denver, Colorado. An important issue facing Dr. Kerry Weaver, ICC's administrative director, is the determination of an appropriate patient load (level of output). To efficiently employ scarce ICC resources, the board of directors has instructed Weaver to maximize ICC operating surplus, defined as revenues minus operating costs. They have also asked Weaver to determine the effects of two proposals for meeting new state health care regulations. Plan A involves an increase in costs of $100 per patient, whereas plan B involves a $20,000 increase in fixed expenses. In her calculations, Weaver has been asked to assume that a $3,000 fee will be received from the state for each patient treated, irrespective of whether plan A or plan B is adopted.
In the calculations for determining an optimal patient level, Weaver regards price as fixed; therefore, P = MR = $3,000. Prior to considering the effects of the new regulations, Weaver projects total and marginal cost relations of:

where Q is the number of ICC patients.