Exam 8: How Firms Make Decisions: Profit Maximization

-Consider the marginal revenue and marginal cost curves shown in Figure 8-12.Assume that the firm represented is able to cover its variable costs if it operates in the short run.What is the firm's optimal output level?

When there are implicit costs of production,

A firm is currently selling its output for $30 per unit.If the firm reduces the price to $29 in order to boost sales,marginal revenue will

-Figure 8-11 indicates the prices at which Lorine's Hair Salon is able to sell various quantities of manicures.If the marginal cost of a manicure is constant at $12.50,then the hair salon's profit on manicures is maximized at

The demand curve facing a firm shows the

If a firm is experiencing an economic loss in the long run,then

William quits his job where he earns an annual salary of $75,000 and opens a management consulting business,charging an hourly rate of $120.He works out of his home,converting a storeroom into an office.(Zoning restrictions prevent William from renting out the room. )Start-up costs are financed by selling $15,000 worth of bonds he inherited that were earning annual interest payments of $900.During his first year,William incurs expenses for supplies and utilities that total $3,500.The total cost of production in the first year equals

Which of the following rules is most consistent with profit maximization?

In order to maximize profits,a firm should decrease output whenever total cost exceeds total revenue.

The return to owners for innovation and risk taking is a firm's

If a firm faces a horizontal demand curve,marginal revenue

-Consider the firm in Figure 8-10.The marginal revenue from selling the fifth unit of output is

-In Figure 8-8,the marginal revenue from adding the fifth unit of output is

If a firm faces a downward-sloping demand curve,its marginal revenue is

-In Figure 8-5,which of the following is true at point B?

A firm's total revenue

Economic profit is another name for accounting profit.

Leugers Custom Cabinetmakers is currently operating at a profit while producing four custom cabinets per week.At that output level,marginal cost exceeds marginal revenue.In order to maximize profit,Leugers should

-Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.If Jonathan sells 10 riding mowers per day,he will earn an economic profit of

If total revenue falls as more output is produced,