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

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.

Accepted Answer

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Question 3

Regarding the relationship between marginal profit and average profit, which of the following statements is NOT true?
A)​If the average profit is rising, the marginal profit figure must be rising.
B)​If marginal profit is lower than average profit, then average profit must decrease when profit increases. 
C)​If marginal profit is below average profit, the average profit decreases. 
D)​All of these statements are 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 4

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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Question 5

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

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Question 6

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

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Question 7

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 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

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

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Question 10

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

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Question 11

The term "satisficing" for decision-making behavior by many firms was coined by
A)Milton Friedman.
B)Adam Smith.
C)Herbert Simon.
D)Alan Greenspan.

Accepted Answer

The term "satisficing" was coined by Herbert Simon, an American economist, in his 1957 book "Models of Man: Social and Rational". Simon argued that firms often make decisions based on satisfying minimum requirements or goals, rather than maximizing profits or utility. This behavior is known as satisficing.

Question 12

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

Question 14

Herbert Simon has concluded that decision making in industry is often best described as
A)optimizing behavior.
B)profit maximizing.
C)satisficing.
D)saturating.

Accepted Answer

Herbert Simon coined the term "satisficing" to describe decision-making in industry, which means finding a solution that is good enough, rather than trying to find the optimal solution. This approach takes into account the limitations on time, information, and resources that exist in the real world, and seeks to achieve a satisfactory outcome rather than an ideal one. Therefore, option C is the correct answer.

Question 15

The optimal number of units to produce is best expressed when:
A)​marginal benefit exceeds marginal cost 
B)​marginal cost exceeds marginal benefit 
C)​marginal benefit and marginal cost are close to equal 
D)​both a and c

Accepted Answer

The optimal number of units to produce is when marginal benefit equals marginal cost, as this is the point where profit is maximized.

Question 16

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

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Question 17

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

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Question 18

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?
A)It falls.
B)It rises.
C)It stays the same.

Accepted Answer

The average weight of persons on the elevator will rise because the combined weight of both individuals is 220 lbs. divided by 2, resulting in an average weight of 110 lbs.

Question 19

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.

Accepted Answer

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

Question 20

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

Accepted Answer

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

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

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.

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