Question 1

Marginal revenue is defined as

Accepted Answer

A)  the change in total revenue from a unit change in price.
B)  the change in average revenue from a one-unit change in output.
C)  the change in total revenue from a one-unit change in output.
D)  the change total cost from a one-unit change in output.E) A) and D)
F) None of the above

Question 2

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.E) A) and B)
F) None of the above

Question 3

Accounting profit differs from economic profit by the amount of the explicit costs faced by a firm.

Accepted Answer

A) True 
 B)False

Question 4

If a firm has determined its optimal output level, where MR = MC, then price

Accepted Answer

A)  is unchanged.
B)  is set by statistical analysis of the market.
C)  is equal to MC.
D)  is determined by the market demand at that output.E) A) and B)
F) A) and C)

Question 5

Most consumers in stores use marginal analysis to make their buying decisions.

Accepted Answer

A) True 
 B)False

Question 6

Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.

Accepted Answer

A) True 
 B)False

Question 7

A computer manufacturer sells 1,000 units per month at $500 each. A price cut to $400 is being considered. His marginal cost is constant at $300 per unit. To maintain profits, quantity sold must increase to at least

Accepted Answer

A)  1,500
B)  2,000
C)  2,500
D)  3,000E) B) and C)
F) A) and C)

Question 8

Average cost equals

Accepted Answer

A)  change in total cost\change in quantity.
B)  total cost\quantity.
C)  total cost − total variable cost.
D)  total cost − total fixed cost.E) C) and D)
F) None of the above

Question 9

The addition to total revenue resulting from one more unit of output is called marginal revenue.

Accepted Answer

A) True 
 B)False

Question 10

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.E) C) and D)
F) All of the above

Question 11

In arriving at the quantity of output and price of its product, a company

Accepted Answer

A)  chooses either output or price, and consumer demand determines the other.
B)  has no control over either quantity or price.
C)  makes two decisions by setting both optimal output and optimal price.
D)  generally leaves both quantity and price decisions to consumers.E) C) and D)
F) B) and D)

Question 12

An optimal level of output is one at which marginal profit > 0.

Accepted Answer

A) True 
 B)False

Question 13

The difference between economic profit and accountant's definition of profit is that an economist's total cost counts the ____ of inputs.

Accepted Answer

A)  absolute value
B)  overheads
C)  opportunity cost
D)  gross costE) B) and C)
F) C) and D)

Question 14

Figure 8-5

In Figure 8-5, profits are maximized at output of

Accepted Answer

A)  10
B)  35
C)  50
D)  60E) A) and B)
F) B) and D)

Question 15

In reality, decisions made by firms may not always produce maximum total profit because some executives

Accepted Answer

A)  are more motivated by altruism.
B)  are more interested in market share than profits.
C)  may push research and development to the point that profits decline.
D)  All of the responses are correct.E) A) and D)
F) A) and C)

Question 16

Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.

Accepted Answer

A) True 
 B)False

Question 17

The rule of equating marginal benefit with marginal cost is a tool that can be applied to a wide variety of decisions, not just economics.

Accepted Answer

A) True 
 B)False

Question 18

A firm is generally more interested in marginal profits than in total profits.

Accepted Answer

A) True 
 B)False

Question 19

A graph of total profits is always likely to be positively sloped throughout its length.

Accepted Answer

A) True 
 B)False

Question 20

The demand curve for a firm's product is also the curve showing

Accepted Answer

A)  total revenue.
B)  marginal revenue.
C)  average revenue.
D)  average profits.E) C) and D)
F) B) and C)

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

The demand curve for a firm's product is also the curve showing

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Figure 8-5 In Figure 8-5, profits are maximized at output of

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A graph of total profits is always likely to be positively sloped throughout its length.

Correct AnswerverifiedShow Answer

The rule of equating marginal benefit with marginal cost is a tool that can be applied to a wide variety of decisions, not just economics.

Correct AnswerverifiedShow Answer

Marginal revenue is defined as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Average cost equals

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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

Correct AnswerverifiedShow Answer

An optimal level of output is one at which marginal profit > 0.

Correct AnswerverifiedShow Answer

In arriving at the quantity of output and price of its product, a company

Correct AnswerverifiedShow Answer

Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.

Correct AnswerverifiedShow Answer

The difference between economic profit and accountant's definition of profit is that an economist's total cost counts the ____ of inputs.

Correct AnswerverifiedShow Answer

Accounting profit differs from economic profit by the amount of the explicit costs faced by a firm.

Correct AnswerverifiedShow Answer

A computer manufacturer sells 1,000 units per month at $500 each. A price cut to $400 is being considered. His marginal cost is constant at $300 per unit. To maintain profits, quantity sold must increase to at least

Correct AnswerverifiedShow Answer

The addition to total revenue resulting from one more unit of output is called marginal revenue.

Correct AnswerverifiedShow Answer

Most consumers in stores use marginal analysis to make their buying decisions.

Correct AnswerverifiedShow Answer

In reality, decisions made by firms may not always produce maximum total profit because some executives

Correct AnswerverifiedShow Answer

Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.

Correct AnswerverifiedShow Answer

If a firm has determined its optimal output level, where MR = MC, then price

Correct AnswerverifiedShow Answer

A firm is generally more interested in marginal profits than in total profits.

Correct AnswerverifiedShow Answer

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