Question 1

$$\begin{array} { c c c } 
\underline {\text { Quantity }} &\underline { \text { Price (dollars) }} & \underline {\text { Tatal Cast (dollars)} } \
1 & 10 & 5 \
2 & 9 & 8 \
3 & 8 & 12 \
4 & 7 & 17 \
5 & 6 & 23
\end{array}$$ 
Explain how much the firm shown in Table 8-3 should produce, first using total profit and then using marginal analysis.Table 8-3

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\underline...

Question 2

Tour companies and cruise lines often offer last minute fares that are far below the prices paid by customers who have booked their trips far in advance.Use marginal analysis to explain this pricing tactic.

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Question 3

Given a demand curve, explain how total revenue may be calculated.

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Question 4

Michael Jordan averaged 35 points per game over a 100-game season.During the playoff round of 10 games, he averaged 50 points, and in the five-game championship series, he led the Chicago Bulls to victory, averaging 40 points.For the entire season, how many points did Jordan score, what was his average, and did the championship series pull his previous average up or down?

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Question 5

A separate average revenue curve is not required when you have the demand curve for a firm.Explain.

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Question 6

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

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Question 7

Complete the following table and determine the point of profit maximization.
 \(\begin{array}{llll}
&\underline {\text { Total }} & \underline {\text { Marginal} } & \underline {\text { Total }} & \underline {\text { Marginal} } \
\underline {\text { Quantity }}&\underline {\text { Revenue} } & \underline {\text { Revenue }} &\underline {\text { Cost }} &\underline { \text { Cost }}& \underline { \text { Profit } } \
100 & 500 &\underline { \quad\quad\quad\quad} & {200}&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
101 & 504.95 &\underline { \quad\quad\quad\quad} & 204.50&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
102 & 509.85 & \underline { \quad\quad\quad\quad} & 209.10&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
103 & 514.70 &\underline { \quad\quad\quad\quad}  & 213.80&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
104 & 519.50 &\underline { \quad\quad\quad\quad}  & 218.60&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
105 & 524.25 & \underline { \quad\quad\quad\quad}  & 223.50&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
106 & 528.95 & \underline { \quad\quad\quad\quad}  & 228.50&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
107 & 533.60 & \underline { \quad\quad\quad\quad}  & 233.60 &\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad} \
108 & 538.20 & \underline { \quad\quad\quad\quad}  & 238.80&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
109 & 542.75 & \underline { \quad\quad\quad\quad}  & 244.10&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad}  \
110 & 547.25 & \underline { \quad\quad\quad\quad} & 249.50&\underline { \quad\quad\quad\quad}& \underline { \quad\quad\quad\quad} 
\end{array}\)

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Question 8

The state is considering adding a satellite campus to its major university.How can marginal analysis assist, even though the university does not attempt to maximize profits?

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Question 9

A firm has $200,000 to spend on either direct sales or advertising.Suppose further that if the $200,000 is spent on direct sales, it will bring in an accounting profit of $40,000.Instead, the (accounting) profit it could obtain from a $200,000 investment in advertising is $X.Compare the profitability of the two options if (a) X = 50,000, (b) X = 30,000, or (c) X = 40,000.

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Question 10

Distinguish between the economist's definition of profit and the accountant's definition.Which is superior for decision making?

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Question 11

The total cost of producing one unit of output is $200; two units cost $300, three units $450, and four units $800.Fixed cost is $50.Draw the associated total cost, average cost, and marginal cost curves, placing total cost on one graph and marginal and average cost on a second graph.

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Question 12

What is the value of marginal profit at the profit-maximizing output?

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Question 13

According to the text, when management selects a price or quantity, it also selects the other.Explain why this is true.

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Question 14

"As long as total revenue slopes up, marginal revenue must slope up also." Explain whether this statement is true or false.

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Question 15

Explain whether a firm's decisions are optimal if economic profit is (a) positive, (b) zero, or (c) negative.

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Question 16

The phone network says it loses money on local calls, because the $20 average monthly bill does not cover its average cost of $30.It estimates that $18 of costs are directly related to local service, with $12 the share from overall expenses (overhead).Why would the phone network be willing to operate if it is losing money?

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Question 17

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

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Question 18

Assume that you have taken over management of a small concession stand on a local beach for the summer.Your main product is iced water, popular on hot days.You've been selling 400 cups per day at 50 cents each.The cups cost 5 cents each.One of your customers suggests that you cut the price to 40 cents to make more money.For the customer to be correct, how much must your sales increase?

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Question 19

Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).

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Question 20

Suppose that on a Saturday night at 10pm a large hotel has 300 vacant rooms, with little expectation of renting them at such a late hour on a weekend.A traveler comes in the door, looking a bit down on his luck, and asks how much a room will cost.Since he can't afford the normal rate of $150, the night manager decides to let him stay in the room for only $40.Is it likely that this decision reduced, or increased, the hotel's profits? Explain your answer.

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