Exam 2: Economic Optimization

The optimal decision produces:

Total cost minimization occurs at the point where:

Marginal profit equals:

Profit per unit is rising when marginal profit is:

Average cost minimization occurs at the point where:

An optimal decision:

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.

When marginal profit equals zero:

Marginal profit equals average profit when:

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.

Marginal cost is rising when marginal cost is:

The comprehensive impact resulting from a decision is the:

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:

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?

If average profit increases with output marginal profit must be:

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.

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

At the profit-maximizing level of output:

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

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.