Question 1

Any change in a firm's fixed costs will change its profit-maximizing level of output.

Accepted Answer

A) True 
 B)False

Question 2

A firm's total profit is the difference between its sales and what it pays out in costs.

Accepted Answer

A) True 
 B)False

Question 3

Optimal decisions are made on the basis of

Accepted Answer

A)  rate of growth in total profit. 
B)  average cost and average revenue figures. 
C)  impact on market share. 
D)  marginal cost and marginal revenue figures.

Question 4

What rule(s) should a firm follow in deciding optimum output for profit maximization?

Accepted Answer

The answer of What rule(s) should a firm follow in...

Question 5

Thomas Edison once said that he began making real profit on light bulbs when he dumped his surplus on the European market at less than the "cost of production." From this we can deduce Edison

Accepted Answer

A)  did not want to maximize profit. 
B)  understood the difference between marginal and average cost. 
C)  had a different definition of the term "profit." 
D)  did not understand the difference between fixed and variable cost.

Question 6

Figure 8-3
 
-Figure 8-3 shows a firm's total profit function.At an output of 40, the firm's total profit equals ____.

Accepted Answer

A)  10 
B)  40 
C)  200 
D)  400

Question 7

If marginal cost of an additional unit of output is greater than average cost, then average cost will rise.

Accepted Answer

A) True 
 B)False

Question 8

A firm can choose a quantity of output, and the price is then determined by

Accepted Answer

A)  the government. 
B)  the supply schedule. 
C)  consumers' demand. 
D)  the average cost.

Question 9

An airline is considering adding a flight from Chicago to Sioux Falls.Total cost of the flight is $5,500.Variable cost is $2,000.Revenue from the flight is expected to be $3,000.Should the flight be added?

Accepted Answer

A)  No, the revenue ($3,000) is below the cost ($5,500.) 
B)  No, the addition to profit is very small and not worth the effort. 
C)  Yes, profit increases by $1,000 ($3,000 - $2,000.) 
D)  Yes, profit increases by $3,000.

Question 10

A firm should keep producing output as long as the marginal profit is greater than zero, no matter how small it is.

Accepted Answer

A) True 
 B)False

Question 11

All business firms should consider their fixed costs in determining the prices they set.

Accepted Answer

A) True 
 B)False

Question 12

Explain the rules for finding maximum profit using total revenue and total cost and marginal revenue and marginal cost.

Accepted Answer

The answer of Explain the rules for finding maximum profit...

Question 13

Marginal, average, and total figures are unrelated.

Accepted Answer

A) True 
 B)False

Question 14

Profit maximization occurs when MC = MR.

Accepted Answer

A) True 
 B)False

Question 15

A grocery store sells soup for $1.50 a can, or $2.50 for two cans.To a customer, the marginal cost of buying the second can of soup is

Accepted Answer

A)  $1. 
B)  $1.25. 
C)  $1.50. 
D)  $2.50.

Question 16

"Satisficing" rather than "maximizing" primarily emerges under conditions where

Accepted Answer

A)  information is costly. 
B)  management lacks ambition. 
C)  profit maximization is rejected on moral grounds. 
D)  risk is minimal.

Question 17

Table 8-2
 $$\begin{array} { c c r } 
\underline {\text { Price } }& \underline {\text { Quantity }} &\underline { \text { Tatal Cast }} \
 \$ 22 & 6 & \$ 60 \
20 & 10 & 100 \
18 & 16 & 160 \
16 & 21 & 210 \
14 & 28 & 280
\end{array}$$
-In Table 8-2, the profit-maximizing level of output is

Accepted Answer

A)  6. 
B)  10. 
C)  16. 
D)  21.

Question 18

A firm that sells at a price below average cost is losing money.

Accepted Answer

A) True 
 B)False

Question 19

Firms may reasonably make a decision to cut prices if

Accepted Answer

A)  profits are not likely to decline. 
B)  marginal profit is not negative. 
C)  MR > MC. 
D)  All of the above are correct.

Question 20

If total profit is at a maximum, then average profit is zero.

Accepted Answer

A) True 
 B)False

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

Any change in a firm's fixed costs will change its profit-maximizing level of output.

A firm's total profit is the difference between its sales and what it pays out in costs.

Optimal decisions are made on the basis of

What rule(s) should a firm follow in deciding optimum output for profit maximization?

Thomas Edison once said that he began making real profit on light bulbs when he dumped his surplus on the European market at less than the "cost of production." From this we can deduce Edison

Figure 8-3 -Figure 8-3 shows a firm's total profit function.At an output of 40, the firm's total profit equals ____.

If marginal cost of an additional unit of output is greater than average cost, then average cost will rise.

A firm can choose a quantity of output, and the price is then determined by

An airline is considering adding a flight from Chicago to Sioux Falls.Total cost of the flight is $5,500.Variable cost is $2,000.Revenue from the flight is expected to be $3,000.Should the flight be added?

A firm should keep producing output as long as the marginal profit is greater than zero, no matter how small it is.

All business firms should consider their fixed costs in determining the prices they set.

Explain the rules for finding maximum profit using total revenue and total cost and marginal revenue and marginal cost.

Marginal, average, and total figures are unrelated.

Profit maximization occurs when MC = MR.

A grocery store sells soup for $1.50 a can, or $2.50 for two cans.To a customer, the marginal cost of buying the second can of soup is

"Satisficing" rather than "maximizing" primarily emerges under conditions where

Table 8-2 $\begin{array} { c c r } \underline {\text { Price } }& \underline {\text { Quantity }} &\underline { \text { Tatal Cast }} \\ \$ 22 & 6 & \$ 60 \\20 & 10 & 100 \\18 & 16 & 160 \\16 & 21 & 210 \\14 & 28 & 280\end{array}$ -In Table 8-2, the profit-maximizing level of output is

A firm that sells at a price below average cost is losing money.

Firms may reasonably make a decision to cut prices if

If total profit is at a maximum, then average profit is zero.