Question 1

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
  
-Which of the following is true of marginal cost?

Accepted Answer

A) Marginal cost is the cost per unit of output produced. 
B) Marginal cost is the change in total cost divided by the change in total output. 
C) Marginal cost curve is negatively sloped at the profit-maximizing level of output. 
D) Marginal cost is equal to total cost divided by the quantity of output. 
E) Marginal cost initially increases with an increase in output but subsequently declines. 
A) Marginal cost is the cost per unit of output produced. 
B) Marginal cost is the change in total cost divided by the change in total output. 
C) Marginal cost curve is negatively sloped at the profit-maximizing level of output. 
D) Marginal cost is equal to total cost divided by the quantity of output. 
E) Marginal cost initially increases with an increase in output but subsequently declines.

Question 2

Scenario 9.1
Jane left her job at Siemens and started her own boutique. She used to earn $50,000 annually at Siemens. She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture. She agreed to repay the loan with 10% interest. Her business is bringing in $80,000 annually. She has rent and labor expenses of $15,000. Also assume that Jane could have used her own money i.e. $20,000 to buy stocks in Intel which would have returned 5% to her last year.
-The equity capital of a privately owned firm includes:

Accepted Answer

A) the owner's own dollars put into the firm. 
B) the cost of raw materials. 
C) the cost of labor resource used in production. 
D) economic rent only. 
E) the value added at each stage of production. 
A) the owner's own dollars put into the firm. 
B) the cost of raw materials. 
C) the cost of labor resource used in production. 
D) economic rent only. 
E) the value added at each stage of production.

Question 3

Scenario 9.2
Consider a publicly held firm (one whose stock shares are traded on the stock exchange) that earned revenue worth $350 million and incurred land, labor, and debt costs worth $320 million. The stockholders who have invested a total of $100 million in this firm could have earned 10 percent return on other comparable investments.
-If marginal revenue is greater than marginal cost, a producer must reduce the level of output to maximize profit.

Accepted Answer

A) True 
 B)False

Question 4

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
  
-The MR schedule can be obtained from the TR schedule by:

Accepted Answer

A) adding two successive values in the TR schedule. 
B) subtracting the succeeding TR value from the preceding TR value. 
C) subtracting the preceding TR value from the succeeding TR value. 
D) multiplying two successive TR values. 
E) dividing the succeeding TR value by the preceding TR value. 
A) adding two successive values in the TR schedule. 
B) subtracting the succeeding TR value from the preceding TR value. 
C) subtracting the preceding TR value from the succeeding TR value. 
D) multiplying two successive TR values. 
E) dividing the succeeding TR value by the preceding TR value.

Question 5

The figure given below shows the cost curves of a firm.Figure 9.3
   ATC: Average Total Cost
AVC: Average Variable Cost
MC: Marginal Cost
-In Figure 9.3, what is the total cost of producing 140 units of the output?

Accepted Answer

A) $40 
B) $55 
C) $300 
D) $5,600 
E) $7,700 
A) $40 
B) $55 
C) $300 
D) $5,600 
E) $7,700

Question 6

The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3
  
-Suppose that at a given level of output, a perfectly competitive firm charges a price of $12 and has average total costs of $10. If its economic profit is $20,000, then it must be producing:

Accepted Answer

A) 40,000 units of output. 
B) 20,000 units of output. 
C) 30,000 units of output. 
D) 10,000 units of output. 
E) 50,000 units of output. 
A) 40,000 units of output. 
B) 20,000 units of output. 
C) 30,000 units of output. 
D) 10,000 units of output. 
E) 50,000 units of output.

Question 7

The figure given below shows the revenue and cost curves of a firm. MC represents the marginal cost curve, AC the average cost curve, MR the marginal revenue curve, and AR the average revenue curve.Figure 9.4
  
-Which among the following does not determine the shape of the demand curve for a good under different market structures?

Accepted Answer

A) Number of substitutes in the market 
B) Importance of the good in a consumer's budget 
C) Cost structure of the firm 
D) Price-elasticity of demand 
E) The length of time being considered 
A) Number of substitutes in the market 
B) Importance of the good in a consumer's budget 
C) Cost structure of the firm 
D) Price-elasticity of demand 
E) The length of time being considered

Question 8

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
  
-If a firm's marginal revenue is greater than its marginal cost, then:

Accepted Answer

A) each added unit of output will reduce profits. 
B) the firm is maximizing profit. 
C) an increase in output will add more to revenue than to cost. 
D) an increase in output will add more to cost than to revenue. 
E) a fall in output will add more to revenue than to cost. 
A) each added unit of output will reduce profits. 
B) the firm is maximizing profit. 
C) an increase in output will add more to revenue than to cost. 
D) an increase in output will add more to cost than to revenue. 
E) a fall in output will add more to revenue than to cost.

Question 9

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
  
-Graphically, a firm's total revenue is represented by the:

Accepted Answer

A) triangle formed under the demand curve. 
B) rectangle formed under the demand curve at a given price and quantity combination. 
C) rectangle formed under the average-total-cost curve at a given ATC and quantity combination. 
D) triangle formed by a line segment between the demand and average-total-cost curves at any level of output. 
E) triangle formed by a line segment between the horizontal axis and the average-total-cost curves at any level of output. 
A) triangle formed under the demand curve. 
B) rectangle formed under the demand curve at a given price and quantity combination. 
C) rectangle formed under the average-total-cost curve at a given ATC and quantity combination. 
D) triangle formed by a line segment between the demand and average-total-cost curves at any level of output. 
E) triangle formed by a line segment between the horizontal axis and the average-total-cost curves at any level of output.

Question 10

Scenario 9.2
Consider a publicly held firm (one whose stock shares are traded on the stock exchange) that earned revenue worth $350 million and incurred land, labor, and debt costs worth $320 million. The stockholders who have invested a total of $100 million in this firm could have earned 10 percent return on other comparable investments.
-Accountants do not often report economic profits on income statements and balance sheets because:

Accepted Answer

A) economic profits are exactly the same as accounting profits, and thus they do not need to be broken out in financial statements. 
B) the cost of capital, while easy to measure, is very difficult to report. 
C) it might make some firms look as though they possessed an unfair competitive advantage over other firms. 
D) the cost of equity capital is very difficult to measure, and opportunity costs vary from investor to investor. 
E) the concept of economic profit is not firmly established in economic theory. 
A) economic profits are exactly the same as accounting profits, and thus they do not need to be broken out in financial statements. 
B) the cost of capital, while easy to measure, is very difficult to report. 
C) it might make some firms look as though they possessed an unfair competitive advantage over other firms. 
D) the cost of equity capital is very difficult to measure, and opportunity costs vary from investor to investor. 
E) the concept of economic profit is not firmly established in economic theory.

Question 11

The figure given below shows the revenue and cost curves of a firm. MC represents the marginal cost curve, AC the average cost curve, MR the marginal revenue curve, and AR the average revenue curve.Figure 9.4
  
-Firms under perfect competition produce:

Accepted Answer

A) homogeneous products. 
B) unique products. 
C) either standardized or differentiated products. 
D) differentiated products. 
E) antique products. 
A) homogeneous products. 
B) unique products. 
C) either standardized or differentiated products. 
D) differentiated products. 
E) antique products.

Question 12

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
  
-Suppose that ABC Industries, a perfectly competitive firm, currently produces 500 units of imitation ham spread for a total cost of $1,500. The marginal cost of the 500th unit is $20, and the marginal revenue of the 500th unit is $15. To maximize profits, Cheapo Industries should:

Accepted Answer

A) continue to produce 500 units. 
B) produce more than 500 units but less than 1500 units. 
C) produce less than 500 units. 
D) produce more than 1500 units. 
E) stop producing at 500 units. 
A) continue to produce 500 units. 
B) produce more than 500 units but less than 1500 units. 
C) produce less than 500 units. 
D) produce more than 1500 units. 
E) stop producing at 500 units.

Question 13

The figure given below shows the revenue and cost curves of a firm. MC represents the marginal cost curve, AC the average cost curve, MR the marginal revenue curve, and AR the average revenue curve.Figure 9.4
  
-Under imperfect competition, a firm's:

Accepted Answer

A) demand curve lies below its marginal revenue curve. 
B) demand curve lies above its marginal revenue curve. 
C) demand curve coincides with its marginal revenue curve. 
D) demand curve coincides with its marginal cost curve. 
E) demand curve coincides with its average cost curve. 
A) demand curve lies below its marginal revenue curve. 
B) demand curve lies above its marginal revenue curve. 
C) demand curve coincides with its marginal revenue curve. 
D) demand curve coincides with its marginal cost curve. 
E) demand curve coincides with its average cost curve.

Question 14

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
  
-Suppose at a certain quantity of output, a firm's average-total-cost curve lies above its demand curve. At this quantity of output, the firm:

Accepted Answer

A) is earning negative economic profit. 
B) is earning zero economic profit. 
C) is maximizing profit. 
D) should increase its output to maximize profit. 
E) should reduce output to maximize negative economic profit. 
A) is earning negative economic profit. 
B) is earning zero economic profit. 
C) is maximizing profit. 
D) should increase its output to maximize profit. 
E) should reduce output to maximize negative economic profit.

Question 15

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
  
-A profit-maximizing firm will produce the level of output at which:

Accepted Answer

A) average revenue equals average cost. 
B) average revenue equals average variable cost. 
C) marginal revenue equals marginal cost. 
D) marginal cost equals average revenue. 
E) marginal revenue exceeds marginal cost by the maximum amount. 
A) average revenue equals average cost. 
B) average revenue equals average variable cost. 
C) marginal revenue equals marginal cost. 
D) marginal cost equals average revenue. 
E) marginal revenue exceeds marginal cost by the maximum amount.

Question 16

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
  
-Marginal revenue of nth unit of output is:

Accepted Answer

A) total revenue of (n+1)th unit minus total revenue of nth unit. 
B) total revenue of nth unit minus total revenue of (n-1)th unit. 
C) total revenue of (n+1)th unit minus total revenue of (n-1)th unit. 
D) the sum of total revenue of (n+1)th unit and nth unit. 
E) the sum of total revenue of (n+1)th unit and (n-1)th unit. 
A) total revenue of (n+1)th unit minus total revenue of nth unit. 
B) total revenue of nth unit minus total revenue of (n-1)th unit. 
C) total revenue of (n+1)th unit minus total revenue of (n-1)th unit. 
D) the sum of total revenue of (n+1)th unit and nth unit. 
E) the sum of total revenue of (n+1)th unit and (n-1)th unit.

Question 17

Scenario 9.1
Jane left her job at Siemens and started her own boutique. She used to earn $50,000 annually at Siemens. She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture. She agreed to repay the loan with 10% interest. Her business is bringing in $80,000 annually. She has rent and labor expenses of $15,000. Also assume that Jane could have used her own money i.e. $20,000 to buy stocks in Intel which would have returned 5% to her last year.
-Refer to Scenario 9.1 and calculate Jane's accounting profit.

Accepted Answer

A) $50,000 
B) $65,000 
C) $80,000 
D) $64,000 
E) $35,000 
A) $50,000 
B) $65,000 
C) $80,000 
D) $64,000 
E) $35,000

Question 18

The table given below shows the total revenue and total cost of producing a commodity.Table 9.1
  
-In Table 9.1, in order to maximize profits, the firm should produce ____ units of output.

Accepted Answer

A) five 
B) six 
C) seven 
D) eight 
E) nine 
A) five 
B) six 
C) seven 
D) eight 
E) nine

Question 19

Scenario 9.2
Consider a publicly held firm (one whose stock shares are traded on the stock exchange) that earned revenue worth $350 million and incurred land, labor, and debt costs worth $320 million. The stockholders who have invested a total of $100 million in this firm could have earned 10 percent return on other comparable investments.
-When a firm's average cost curve lies below its average revenue curve at the profit-maximizing level of output, it implies that the firm is suffering losses.

Accepted Answer

A) True 
 B)False

Question 20

The following figure shows the cost and revenue structures of a firm. MC represents the marginal cost curve, AC represents the average cost curve, AR represents the average revenue curve, and MR represents the marginal revenue curve. P* is the equilibrium price and Q* is the equilibrium output.Figure 9.5
  
-Suppose Mark invests a sum of $100,000 in a new venture. To fund his investment, Mark withdraws $50,000 from a savings account paying 10% per year and uses the proceeds from a bond that has just matured worth $50,000. If he had reinvested the proceeds from the bond, he could have earned interest at the rate of 5%. Calculate the opportunity cost of capital for Mark in a particular year.

Accepted Answer

A) $5,000 
B) $7,500 
C) $10,000 
D) $12,500 
E) $100,000 
A) $5,000 
B) $7,500 
C) $10,000 
D) $12,500 
E) $100,000

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2 -Which of the following is true of marginal cost?

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2 -The MR schedule can be obtained from the TR schedule by:

The figure given below shows the cost curves of a firm.Figure 9.3 ATC: Average Total Cost AVC: Average Variable Cost MC: Marginal Cost -In Figure 9.3, what is the total cost of producing 140 units of the output?

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2 -If a firm's marginal revenue is greater than its marginal cost, then:

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2 -Graphically, a firm's total revenue is represented by the:

The figure given below shows the revenue and cost curves of a firm. MC represents the marginal cost curve, AC the average cost curve, MR the marginal revenue curve, and AR the average revenue curve.Figure 9.4 -Firms under perfect competition produce:

The figure given below shows the revenue and cost curves of a firm. MC represents the marginal cost curve, AC the average cost curve, MR the marginal revenue curve, and AR the average revenue curve.Figure 9.4 -Under imperfect competition, a firm's:

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2 -Suppose at a certain quantity of output, a firm's average-total-cost curve lies above its demand curve. At this quantity of output, the firm:

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2 -A profit-maximizing firm will produce the level of output at which:

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2 -Marginal revenue of n^th unit of output is:

The table given below shows the total revenue and total cost of producing a commodity.Table 9.1 -In Table 9.1, in order to maximize profits, the firm should produce ____ units of output.

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Scarcity and Opportunity Costs

Markets and the Price System

The Aggregate Economy

Using Economics to Understand the World Around You

Elasticity: Demand and Supply

Demand: Consumer Choice

Supply: the Costs of Doing Business

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Markets and Government

Antitrust and Regulation

Resource Markets

The Labor Market

The Capital Market

The Land Market and Natural Resources

Current Issues: Income, Income Distribution, Poverty, and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Exam 9: Profit Maximization