Question 1

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?

Accepted Answer

The answer of The phone network says it loses money...

Question 2

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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The answer of According to the text, when management selects...

Question 3

If a person who weighs 100 lbs.is riding in an elevator and is joined by a person weighing 120 lbs., what happens to the average weight of persons on the elevator?

Accepted Answer

When a person weighing 120 lbs. joins a person weighing 100 lbs. in an elevator, the total weight in the elevator is now 220 lbs. As a result, the average weight of persons on the elevator will rise.

Question 4

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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The answer of A firm has $200,000 to spend on...

Question 5

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).

Accepted Answer

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Question 6

The term "satisficing" for decision-making behavior by many firms was coined by

Accepted Answer

The term "satisficing" was coined by Herbert Simon, who argued that firms seek satisfactory, rather than optimal solutions, when making decisions due to the complexity and uncertainty of the business environment. This behavior is a departure from the assumptions of classical economic theory, which assumes that firms always make rational and optimal decisions.

Question 7

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

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

Question 8

Regarding the relationship between marginal profit and average profit, which of the following statements is NOT true?

Accepted Answer

Statement A is not true because if the average profit is rising, it does not necessarily mean that the marginal profit must be rising as well. Marginal profit could be above or below the average profit and still cause the average profit to rise, as long as it is positive.

Question 9

"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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The answer of "As long as total revenue slopes up,...

Question 10

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

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Question 11

Suppose that on a Saturday night at 10 pm, 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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The answer of Suppose that on a Saturday night at...

Question 12

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

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Question 13

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 14

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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The answer of Tour companies and cruise lines often offer...

Question 15

Herbert Simon has concluded that decision making in industry is often best described as

Accepted Answer

Herbert Simon introduced the concept of satisficing, which refers to decision-making that focuses on finding a solution that is satisfactory, rather than optimizing or maximizing behavior. In other words, decision-makers are more interested in finding an acceptable solution rather than the best possible one. Therefore, the best choice is C, satisficing.

Question 16

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

Accepted Answer

The answer of A separate average revenue curve is not...

Question 17

The optimal number of units to produce is best expressed when

Accepted Answer

When marginal benefit and marginal cost are close to equal, it indicates that producing one more unit will result in nearly the same benefit as the cost, resulting in maximum profitability for the business. If marginal benefit exceeds marginal cost, the business may not be maximizing its profits by not producing more units, while if marginal cost exceeds marginal benefit, the business may be wasting resources by producing too many units. Marginal benefit and cost being equal to zero does not make sense in the context of production.

Question 18

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

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Question 19

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

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Question 20

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?

Accepted Answer

The answer of Michael Jordan averaged 35 points per game...

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