Question 1

Stuffed Pies is a frozen calzone manufacturer. The table above summarizes Stuffed Pies' marginal revenue and marginal cost at various quality amounts.
-Refer to the table above. If Stuffed Pies is currently producing 13 units of quality, to maximize profit, Stuffed Pies should _______ the units of quality.
A)not change
B)decrease
C)increase by 50 percent
D)increase

Accepted Answer

At 13 units of quality, marginal cost exceeds marginal revenue, implying that by producing one more unit of quality, Stuffed Pies would incur a loss. Thus, to maximize profit, Stuffed Pies should decrease the units of quality.

Question 2

In general, consumers' valuation of additional units of quality as more units of quality are included in the product, causing the marginal revenue curve from quality improvement to be sloping.
A)falls; upward
B)increases; downward
C)falls; downward
D)increases; upward

Accepted Answer

As more units of quality are included in the product, consumers' valuation of additional units of quality falls. This means that the marginal revenue curve from quality improvement will slope downward.

Question 3

In general, a producer's marginal cost of additional units of quality as more units of quality are included in the product, causing the marginal cost curve from quality improvement to be _ sloping.
A)increases; downward
B)increases; upward
C)falls; downward
D)falls; upward

Accepted Answer

As more units of quality are included in the product, the cost of producing an additional unit of quality increases. This is because the producer may need to invest in better technology or use higher quality materials, both of which increase the cost of production. Therefore, the marginal cost curve will slope upward as quality improves.

Question 4

Which of the following is an example of an ordering cost for goods held in inventory?
A)the cost of storage
B)the opportunity cost of using funds to finance the inventory
C)the managerial time spent creating an order for inventory
D)the costs of securing the inventory

Accepted Answer

Ordering costs refer to the expenses incurred when placing an order for inventory, such as the time spent by managers to create the order. Option A refers to holding costs, option B refers to financing costs, and option D refers to security costs.

Question 5

The meaning of product quality is dependent on the type of product.

Accepted Answer

The definition of quality varies depending on the type of product. For example, quality for a luxury product may mean exceptional craftsmanship and exclusivity, while quality for a basic necessity may mean affordability and reliability.

Question 6

All of the following are true regarding the Economic Order Quantity model except which one?
A)It accounts for changes in interest rates.
B)It determines the cost- minimizing quantity managers should order to keep in inventory.
C)It assumes demand is spread evenly over a time period.
D)It assumes demand is known with certainty.

Accepted Answer

The Economic Order Quantity model does not take into account changes in interest rates. It simply calculates the optimal order quantity based on the assumptions of known demand, even spread of demand over time, and fixed ordering and holding costs.

Question 7

Fresh Laundry is a firm that produces laundry detergent. The table above summarizes Fresh Laundry's product quality marg revenue and marginal cost at various quality levels.
-Refer to the table above. If Fresh Laundry is currently producing 6 quality units, to maximize profit, Fresh Laundry should ______the number of quality units as the current quality marginal revenue is______ than its marginal cost.
A)decrease; less
B)increase; less
C)decrease; greater
D)increase; greater

Accepted Answer

To maximize profit, a firm should produce until marginal revenue equals marginal cost. If the marginal revenue of producing an additional unit of quality is greater than the marginal cost, the firm can increase its profit by producing more. Therefore, if the current marginal revenue is greater than the marginal cost, Fresh Laundry should increase the number of quality units.

Question 8

Fresh Laundry is a firm that produces laundry detergent. The table above summarizes Fresh Laundry's product quality marg revenue and marginal cost at various quality levels.
-Refer to the table above. If Fresh Laundry is currently producing 4 quality units, to maximize profit, Fresh Laundry should ______the number of quality units as the current quality marginal revenue is______ than its marginal cost.
A)increase; less
B)increase; greater
C)decrease; less
D)decrease; greater

Accepted Answer

To maximize profit, a firm should produce where marginal revenue (MR) equals marginal cost (MC). If MR is greater than MC, the firm can increase profit by producing more.

Question 9

Stuffed Pies is a frozen calzone manufacturer. The table above summarizes Stuffed Pies' marginal revenue and marginal cost at various quality amounts.
-Refer to the table above. What is the profit- maximizing number of quality units for Stuffed Pies to produce?
A)13
B)11
C)7
D)9

Accepted Answer

The profit-maximizing number of quality units for Stuffed Pies to produce is where marginal revenue equals marginal cost. This occurs at a quality of 9, where MR=MC and the profit per unit is $3.50. At any higher or lower quality, Stuffed Pies would not be maximizing their profits.

Question 10

Fresh Laundry is a firm that produces laundry detergent. The table above summarizes Fresh Laundry's product quality marg revenue and marginal cost at various quality levels.
-Refer to the table above. If Fresh Laundry is currently producing 2 quality units, to maximize profit, Fresh Laundry should ______the number of quality units as the current quality marginal revenue is______ than its marginal cost.
A)increase; greater
B)decrease; less
C)decrease; greater
D)increase; less

Accepted Answer

Fresh Laundry should increase the number of quality units as the current quality marginal revenue ($10) is greater than its marginal cost ($8). This will result in higher profit for the company.

Question 11

The quality profit- maximization rule states managers should produce the level of quality that sets the marginal revenue from an additional unit of quality equal to the marginal cost of producing the additional unit of quality.

Accepted Answer

The statement is true as per the quality profit-maximization rule.

Question 12

Which of the following is an example of a carrying cost of holding an inventory?
A)the costs of securing the inventory
B)the delivery charges for an order
C)the managerial time spent creating an order for inventory
D)the cost of the paperwork necessary to pay for each order

Accepted Answer

Carrying costs are expenses incurred by a company for holding inventory in stock. These costs can include storage, insurance, labor, equipment maintenance, interest on financing, and other related costs. The cost of securing the inventory falls under the category of storage costs and are an example of carrying costs.

Question 13

Which of the following is an example of a carrying cost of holding an inventory?
A)the managerial time spent creating an order for inventory
B)the delivery charges for an order
C)the cost of the paperwork necessary to pay for each order
D)the cost of storage

Accepted Answer

The cost of storage, such as rent for warehouse space, is one of the most direct and significant carrying costs of holding inventory. It also includes property taxes, insurance, utilities, equipment, and maintenance expenses associated with the storage facility. Option A, B, and C are costs associated with ordering or purchasing inventory, not with holding it.

Question 14

In general, the product quality marginal revenue curve is downward sloping and the product quality marginal cost curve is upward sloping.

Accepted Answer

This is because as more products are produced, the cost per unit typically increases, while the revenue received for each additional unit sold usually decreases due to market saturation or competition. Therefore, the optimal level of product quality and quantity is where the marginal revenue equals the marginal cost, which occurs at a lower quantity and quality than a monopolistic producer would prefer.

Question 15

Product quality is likely to be the same for a frozen pizza firm and a paper towel firm.

Accepted Answer

Product quality can vary greatly between different types of products and industries. Frozen pizzas and paper towels have different quality standards and expectations from consumers. For example, a frozen pizza firm may need to focus on the quality of the crust and toppings, while a paper towel firm may need to focus on absorbency and strength.

Question 16

Fresh Laundry is a firm that produces laundry detergent. The table above summarizes Fresh Laundry's product quality marg revenue and marginal cost at various quality levels.
-Refer to the table above. If Fresh Laundry is currently producing 10 quality units, to maximize profit, Fresh Laundry should the number of quality units as the current quality marginal revenue is its marginal cost.
A)maintain; equal to
B)decrease; less than
C)decrease; equal to
D)maintain; less than

Accepted Answer

The answer of  Fresh Laundry is a firm that...

Question 17

Fresh Laundry is a firm that produces laundry detergent. The table above summarizes Fresh Laundry's product quality marg revenue and marginal cost at various quality levels.
-Refer to the table above. What is the profit- maximizing number of quality units for Fresh Laundry to produce?
A)10
B)4
C)8
D)6

Accepted Answer

The profit-maximizing quantity for Fresh Laundry to produce is where marginal revenue (MR) equals marginal cost (MC). Looking at the table, we can see that the point where MR and MC intersect is at a quality level of 8. At this level, Fresh Laundry can charge a price of $12 per unit, and produce 8 units at a marginal cost of $8 per unit. This results in a profit of $32 per unit, which is higher than any other quality level. Therefore, choice C is the best choice for Fresh Laundry to maximize profits.

Question 18

All of the following are true regarding the Economic Order Quantity model except which one?
A)It determines the cost- minimizing quantity managers should order to keep in inventory.
B)It accounts for seasonal changes in demand.
C)It assumes demand is known with certainty.
D)It assumes demand is spread evenly over a time period.

Accepted Answer

The Economic Order Quantity model does not account for seasonal changes in demand, as it assumes demand is spread evenly over a time period.

Question 19

In general, consumers' valuation of additional units of quality increases as more units of quality are included in a product.

Accepted Answer

In general, consumers' valuation of additional units of quality tends to decrease as more units of quality are included in a product, reflecting the principle of diminishing marginal utility.

Question 20

Fresh Laundry is a firm that produces laundry detergent. The table above summarizes Fresh Laundry's product quality marg revenue and marginal cost at various quality levels.
-Refer to the table above. If Fresh Laundry is currently producing 8 quality units, to maximize profit, Fresh Laundry should______ the number of quality units as the current quality marginal revenue is ______its marginal cost.
A)increase; less than
B)increase; equal to
C)maintain; greater than
D)maintain; equal to

Accepted Answer

The answer of  Fresh Laundry is a firm that...

Quiz 12: Decisions About Production, Products, and Location

In general, consumers' valuation of additional units of quality as more units of quality are included in the product, causing the marginal revenue curve from quality improvement to be sloping.

In general, a producer's marginal cost of additional units of quality as more units of quality are included in the product, causing the marginal cost curve from quality improvement to be _ sloping.

Which of the following is an example of an ordering cost for goods held in inventory?

The meaning of product quality is dependent on the type of product.

All of the following are true regarding the Economic Order Quantity model except which one?

Stuffed Pies is a frozen calzone manufacturer. The table above summarizes Stuffed Pies' marginal revenue and marginal cost at various quality amounts. -Refer to the table above. What is the profit- maximizing number of quality units for Stuffed Pies to produce?