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

Question 1

A firm's total revenue is simply the price of its product multiplied by the quantity sold.

Answer 1

True

Question 2

It can be shown that average revenue and price are always equal.

Answer 2

True

Question 3

Economists assume that business firms have many goals, and profit maximization is just one of them.

Answer 3

False

Question 4

A small business owner who is earning a positive economic profit, no matter how small, is doing better than if he or she sold his or her business and went to work for another firm.

Question 5

Economists assume that business firms attempt to maximize their profits.

Question 6

Accounting profit is usually larger than economic profit.

Question 7

Price and output decisions are two aspects of the same choice.

Question 8

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

Question 9

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

Question 10

Accounting profit is usually smaller than economic profit.

Question 11

A firm that is earning zero economic profit should go out of business.

Question 12

Economists and accountants have very different definitions of profit.

Question 13

Total revenue is equal to quantity multiplied by average revenue.

Question 14

Average revenue is slightly higher than price.

Question 15

Total revenue cannot be derived from the demand curve or a demand schedule.

Question 16

Economists and accountants use the same definition of profit.

Question 17

Once a firm has selected a price for its product, quantity is decided by consumers and their demand curves.

Question 18

A firm's demand curve can be used to determine average revenue.

Question 19

The average revenue curve can also be described as the demand curve.

Question 20

Over the range of most of a firm's output, average revenue is greater than price.

Question 21

If marginal cost is less than average cost, average cost must fall when more units are produced.

Question 22

Total cost equals average cost multiplied by the quantity of output.

Question 23

If marginal cost is rising, then average cost must be rising.

Question 24

If average cost is falling, then marginal cost must be less than average cost.

Question 25

Marginal cost is defined by the slope of the total revenue curve.

Question 26

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

Question 27

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

Question 28

Marginal cost for a firm can be derived from its demand curve.

Question 29

Marginal, average, and total figures are bound together. If any two are known, the third can be calculated.

Question 30

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

Question 31

Marginal revenue equals the change in total revenue that is earned by selling one more unit of output.

Question 32

Average cost is the cost of producing the next unit.

Question 33

Average cost can be thought of as the cost per unit.

Question 34

Over the range of output, a firm's marginal revenue initially increases and then decreases.

Question 35

Average cost equals total cost multiplied by the number of units of output.

Question 36

Marginal cost curves and average cost curves are both purely upward sloping.

Question 37

Whenever marginal cost is positive, average cost curves are upward sloping.

Question 38

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

Question 39

If average cost is falling, then marginal cost must be falling.

Question 40

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

Question 41

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

Question 42

Marginal profit is the additional profit that accrues to the firm when the output rises by one unit.

Question 43

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

Question 44

Total profit is maximized when marginal profit maximized.

Question 45

Total profit is represented by the vertical distance between a total revenue curve and a total cost curve.

Question 46

If the average cost of a product is $10 per unit and the price is $5, the firm is losing money.

Question 47

Profits will be maximized when the slope of the total revenue curve and the slope of the total cost curve are equal.

Question 48

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

Question 49

Marginal profit is the slope of the total profit curve.

Question 50

If the marginal profit of the next unit is negative, the firm should produce more output in order to generate greater profit.

Question 51

If the quantity output and average cost at that output level are known, then it is possible to determine marginal cost for that output level.

Question 52

Given total cost and the quantity of output, marginal cost and average cost can be determined.

Question 53

If a firm's marginal profit is negative, it should reduce its output level.

Question 54

If the price of a product is $10 per unit and the variable cost per unit is $5, the firm is making a profit.

Question 55

If marginal profit is negative when the firm produces one more unit, then the firm is currently maximizing profits.

Question 56

Marginal profit equals the difference between marginal revenue and average cost.

Question 57

Profits will be maximized when the slope of the total revenue curve and the slope of the total cost curve equal zero.

Question 58

Marginal profit equals the difference between marginal revenue and marginal cost.

Question 59

Since the demand curve is downward sloping, the graph of total profits is also has a negative slope.

Question 60

Marginal profit is positive at all positive output levels.

Question 61

A firm that decides to make a price cut assumes that marginal profit is negative.

Question 62

Firms need to know the shape of a demand curve to use marginal analysis.

Question 63

Profit is maximized at the output at which marginal revenue exceeds marginal cost by the greatest margin.

Question 64

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

Question 65

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

Question 66

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.

Question 67

If total profit is maximized, then marginal cost must equal marginal revenue.

Question 68

Profit is maximized at the output at which marginal revenue equals marginal cost.

Question 69

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

Question 70

In the case study discussed in the chapter, the electronics firm was losing money by selling its calculators at a price that was below average cost.

Question 71

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

Question 72

A firm should use marginal analysis when making a price-output decision.

Question 73

Profit maximization occurs when MC = MR.

Question 74

In the case study discussed in the chapter, the electronics firm was actually enhancing its profits by selling calculators at a price that was below average cost.

Question 75

When a firm's fixed costs increase it should raise its prices in order to maximize profits.

Question 76

The rule of equating marginal benefit with marginal cost is proper for economics, but it does not describe the way in which people make non-economic decisions.

Question 77

Net benefit is equal to total benefit minus marginal cost.

Question 78

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

Question 79

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

Question 80

If a firm's fixed costs increase, then profits drop but its output should not change.