Question 1

If marginal revenue is less than average revenue, the:
A)total revenue curve is downward sloping.
B)demand curve is downward sloping.
C)average revenue curve is upward sloping.
D)marginal revenue curve is downward sloping.

Accepted Answer

B

Question 2

At the profit-maximizing activity level:
A)marginal cost is rising.
B)marginal revenue is falling.
C)marginal cost is falling.
D)none of these.

Accepted Answer

The profit-maximizing activity level occurs where marginal cost is equal to marginal revenue, which means neither is necessarily rising or falling. Therefore, none of the choices are correct.

Question 3

Average cost will fall as output expands so long as:
A)marginal revenue is less than average revenue.
B)marginal cost equals zero.
C)marginal cost is less than average cost.
D)fixed costs equal zero.

Accepted Answer

When marginal cost is less than average cost, each additional unit of output is being produced at a lower cost than the previous unit. This means that as output expands, the average cost of production will fall. However, choice A (marginal revenue being less than average revenue) and choice D (fixed costs equal zero) do not necessarily have a direct impact on the relationship between output and average cost. Choice B (marginal cost equals zero) is not true in most cases and is not a requirement for average cost to fall as output expands. As long as marginal cost is less than average cost, each additional unit produced will contribute to decreasing the average cost, leading to a fall in overall average cost as output expands.

Question 4

The profit-maximizing level of output occurs where:
A)marginal cost equals average cost.
B)marginal revenue equals zero.
C)total profit equals zero.
D)marginal cost equals marginal revenue.

Accepted Answer

The profit-maximizing level of output occurs where marginal cost equals marginal revenue, as long as the marginal revenue is greater than or equal to the marginal cost. This is because at this level of output, the additional revenue earned from producing one more unit is exactly equal to the additional cost incurred in producing that one more unit. Any increase in output beyond this point would lead to a decrease in profit as the cost of producing additional units would exceed the revenue earned from selling those units. The profit-maximizing level of output occurs where marginal cost equals marginal revenue, as this is where the additional cost of producing one more unit is just equal to the additional revenue earned from selling that unit. At this point, the firm is maximizing its profits because any further increase in output would increase costs more than it would increase revenue, and any decrease in output would decrease revenue more than it would decrease costs.

Question 5

Marginal profit is:
A)total revenue minus total cost.
B)the change in profit caused by a given managerial decision.
C)the profit earned by the firm over a brief period of time.
D)the change in profit that results from a unitary change in output.

Accepted Answer

Marginal profit is defined as the change in profit resulting from a unitary change in output, which means how much extra profit a company earns from producing one more unit of a product. It is calculated by subtracting the total cost of producing one extra unit from the additional revenue earned by selling that unit. Therefore, option D is the most appropriate answer. Marginal profit is the change in profit that results from producing an additional unit of output, which is why option D is the correct choice. Option A describes the formula for calculating total profit, while option B is a general definition of marginal analysis. Option C incorrectly refers to a short-term measurement of profit.

Question 6

If marginal cost equals average cost:
A)marginal cost is rising.
B)average cost is minimized.
C)marginal cost is falling.
D)marginal cost always equals zero.

Accepted Answer

If marginal cost equals average cost, it means that the additional cost of producing one more unit is equal to the average cost of all units. This implies that the average cost is at its lowest point, or in other words, the firm is producing at its most efficient level of output. Therefore, the answer is B - average cost is minimized. When marginal cost equals average cost, it means that the last unit produced has the same cost as the average cost per unit. This indicates that the average cost is at its minimum point. Therefore, the answer is B - average cost is minimized.

Question 7

The slope of a total profit curve indicates:
A)an inflection point.
B)average profit at that point.
C)marginal profit at that point.
D)total profit at that point.

Accepted Answer

The slope of a total profit curve indicates the marginal profit at that point, meaning the additional profit earned by producing and selling one more unit of the product. The slope of a total profit curve represents the marginal profit at that point, which is the additional profit gained from producing one additional unit.

Question 8

If total revenue falls as output increases, marginal revenue:
A)is greater than average revenue.
B)is greater than marginal cost.
C)is always negative.
D)equals zero.

Accepted Answer

If total revenue falls as output increases, it means that marginal revenue is negative. The only choice that reflects this situation is C, which states that marginal revenue is always negative. If total revenue falls as output increases, it means that marginal revenue is negative. Therefore, option C is the correct choice.

Question 9

Profit-maximizing firms always:
A)sell at lower prices than revenue-maximizing firms.
B)sell less output than revenue-maximizing firms.
C)set marginal cost equal to average cost.
D)none of these.

Accepted Answer

The answer of Profit-maximizing firms always:
A)sell at lower prices than...

Question 10

If TR = $500Q - $2Q2:
A)MR = $500 - $2Q.
B)MR = $500 - $4Q.
C)MR = $500Q - $2.
D)MR = $500 - $4.

Accepted Answer

The formula for calculating marginal revenue (MR) is the change in total revenue divided by the change in quantity. In this case, the change in total revenue is equal to the change in quantity multiplied by the marginal revenue curve's slope. Since TR = $500Q - $2Q^2, the derivative of this equation with respect to Q gives us MR = $500 - $4Q. Therefore, the correct answer is B. The formula to calculate MR (marginal revenue) is given by the change in total revenue divided by the change in quantity (Q), which can be expressed as MR = ΔTR / ΔQ. Taking the derivative of TR = $500Q - $2Q2, we get MR = $500 - $4Q. Therefore, the correct choice is B.

Quiz 2: Economic Optimization

If marginal revenue is less than average revenue, the:

At the profit-maximizing activity level:

Average cost will fall as output expands so long as:

The profit-maximizing level of output occurs where:

Marginal profit is:

If marginal cost equals average cost:

The slope of a total profit curve indicates:

If total revenue falls as output increases, marginal revenue:

Profit-maximizing firms always:

If TR = $500Q - $2Q2: