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

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

Accounting profit is usually larger than economic profit.

Question 6

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

Question 7

Total revenue is equal to quantity multiplied by average revenue.

Question 8

Average revenue is slightly higher than price.

Question 9

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

Question 10

Economists and accountants have very different definitions of profit.

Question 11

Economists assume that business firms attempt to maximize their profits.

Question 12

Economists and accountants use the same definition of profit.

Question 13

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

Question 14

Accounting profit is usually smaller than economic profit.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

Marginal profit is the slope of the total profit curve.

Question 36

Average cost is the cost of producing the next unit.

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

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

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

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

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

Question 52

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

Question 53

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

Question 54

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 55

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

Question 56

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

Question 57

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

Question 58

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

Question 59

Net benefit is equal to total benefit minus marginal cost.

Question 60

Profit maximization occurs when MC = MR.

Question 61

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

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.

Question 62

Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was earning 10 percent interest) in a new real estate business.Her accountant predicted a $60,000 revenue the first year.Her husband, an economist, forecast her profit to be

A) $10,000.
B) $28,000.
C) $32,000.
D) $60,000.

Question 63

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

Question 64

Marginal analysis is useful in economics, but not in other areas of life.

Question 65

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

Question 66

Marginal, average, and total figures are unrelated.

Question 67

Price and quantity decisions made by a company have vital influences on

A) the firm's labor requirements.
B) consumer response to the product.
C) future success of the company.
D) All of the above are correct.

Question 68

If a firm's average cost is currently $100, and the marginal cost is $95, then the average cost is currently falling.

Question 69

Decision making that seeks only solutions that are acceptable is called

A) optimizing.
B) satisficing.
C) benchmarking.
D) maximizing.

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

Question 72

The goal of the business firm is maximization of ____, and the goal of the consumer is maximization of ____.

A) total sales; income
B) total profit; utility
C) total output; utility
D) total sales; utility

Question 73

Profit maximization is

A) the only motive of any firm's management.
B) a behavioral assumption to simplify analysis.
C) the same as satisficing.
D) a literal description of a firm's behavior.

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

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

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

Question 76

Economists use a model that is a literal description of business' behavior.

Question 77

Management gets two numbers (price and quantity) from one decision because

A) the marginal utility of goods is fixed.
B) producers use both technical and financial information.
C) the demand curve consists of price and quantity pairs.
D) the average cost curve has only one low point.

Question 78

The assumption that firms attempt to maximize profits will yield good predictions even if firms sometimes pursue other goals.

Question 79

Sally leaves her $24,000 secretarial position with a company and invests her savings of $15,000 (on which she was earning 6 percent interest) in her own Ready Sec agency.After expenses, her net income was $28,900.Her economic profit was

A) $4,900.
B) $4,000.
C) $28,900.
D) -$10,100.

Question 80

Ben quit his job as an economics professor to become a golf professional.He gave up his salary ($40,000) and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture.After all expenses, his net winnings (profit) were $45,000.Ben's economic profits were

A) $45,000.
B) $5,000.
C) $2,000.
D) zero.