Question 1

Dunston Military Academy has an annual deficit of $250,000.Its 1,000 students pay tuition of $10,000 each per year.The economics faculty has recommended solving the problem by recruiting additional athletes with $5,000 scholarships.Each additional athlete will cost the school $2,500 (equipment, etc.).Assuming the academy agrees, how many athletes are needed to eliminate the deficit?

Accepted Answer

A) Zero, the deficit cannot be eliminated by giving more scholarships. 
B) 25 
C) 50 
D) 100

Question 2

Explain whether a firm's decisions are optimal if economic profit is (a) positive, (b) zero, or (c) negative.

Accepted Answer

The answer of Explain whether a firm's decisions are optimal...

Question 3

A firm may choose to raise price when

Accepted Answer

A) profits would increase at the higher price. 
B) MR > MC. 
C) average profit is zero. 
D) it relies on marginal analysis.

Question 4

What is the value of marginal profit at the profit-maximizing output?

Accepted Answer

The answer of What is the value of marginal profit...

Question 5

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

Accepted Answer

A) marginal cost was below average cost but less than marginal revenue. 
B) average cost exceeded variable cost, which exceeded marginal revenue. 
C) variable cost exceeded fixed cost but was less than marginal revenue. 
D) marginal cost was above average cost but greater than marginal revenue.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3.They agree to split the lunch bill evenly.Ed chooses a hot dog.The marginal cost to Joe if he orders a hamburger, instead of a hot dog, is

Accepted Answer

A) $1. 
B) $2. 
C) $2.50. 
D) $3.

Question 8

Average cost is the cost of producing the next unit.

Accepted Answer

A) True 
 B)False

Question 9

Ben quit his job as an economics professor to become a golf professional.He gave up his salary ($40,000) and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture.After all expenses, his net winnings (profit) were $45,000.Ben's economic profits were

Accepted Answer

A) $45,000. 
B) $5,000. 
C) $2,000. 
D) zero.

Question 10

Accounting profit is usually larger than economic profit.

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

Over the range of output, a firm's marginal revenue initially increases and then decreases.

Accepted Answer

A) True 
 B)False

Question 13

An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

Accepted Answer

A) additional passengers are needed to balance the load. 
B) the marginal cost of additional passengers is very small. 
C) additional passengers add little to fixed costs. 
D) such passengers add more to profits than do those with reserved seats.

Question 14

Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).

Accepted Answer

The answer of Using marginal analysis, explain why many restaurants...

Question 15

Total profit equals

Accepted Answer

A) TR − TC. 
B) average profit times total output. 
C) total sales revenue minus total cost. 
D) All of the responses are correct.

Question 16

In the short run, which are most important in determining changes in output?

Accepted Answer

A) Marginal cost and marginal revenue 
B) Total costs and revenue 
C) Average cost and average revenue 
D) Fixed costs

Question 17

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

Accepted Answer

A) $7,000. 
B) $2,500. 
C) $1,500. 
D) $250.

Question 18

Many large universities rent out parts of their campuses to conference groups during the summer because such groups cause little damage, require little staff attention, and bring in large amounts of income.A university's decision to rent its campus to a conference group is most clearly based on

Accepted Answer

A) the idea that price and quantity selection is a single decision. 
B) the principle of decreasing returns to scale. 
C) marginal analysis. 
D) average cost considerations.

Question 19

When marginal cost exceeds marginal revenue,

Accepted Answer

A) marginal profit  marginal revenue. 
D) marginal cost < marginal revenue - marginal profit.

Question 20

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

Accepted Answer

A) True 
 B)False

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

Explain whether a firm's decisions are optimal if economic profit is (a) positive, (b) zero, or (c) negative.

A firm may choose to raise price when

What is the value of marginal profit at the profit-maximizing output?

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

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3.They agree to split the lunch bill evenly.Ed chooses a hot dog.The marginal cost to Joe if he orders a hamburger, instead of a hot dog, is

Average cost is the cost of producing the next unit.

Ben quit his job as an economics professor to become a golf professional.He gave up his salary ($40,000) and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture.After all expenses, his net winnings (profit) were $45,000.Ben's economic profits were

Accounting profit is usually larger than economic profit.

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.

Over the range of output, a firm's marginal revenue initially increases and then decreases.

An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).

Total profit equals

In the short run, which are most important in determining changes in output?

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

Many large universities rent out parts of their campuses to conference groups during the summer because such groups cause little damage, require little staff attention, and bring in large amounts of income.A university's decision to rent its campus to a conference group is most clearly based on

When marginal cost exceeds marginal revenue,

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