Question 1

Figure 8-5
 
-In Figure 8-5, profits are maximized at output of
A)10.
B)35.
C)50.
D)60.

Accepted Answer

The answer of Figure 8-5
 
-In Figure 8-5, profits are...

Question 2

Total profit is maximized if the slope of the total profit curve is
A)positive.
B)negative.
C)increasing.
D)zero.

Accepted Answer

The slope of the total profit curve represents the marginal profit, which is the additional profit gained from producing and selling one more unit. The profit is maximized at the point where marginal profit is zero, which occurs when the total profit curve is at its peak or maximum point. Therefore, the slope of the total profit curve must be zero at the point of maximum profit.

Question 3

A profit-maximizing firm always
A)sells its output at P = MR.
B)produces at the output at which MR = 0.
C)hires labor until the MRP of labor = 0.
D)produces every unit of output for which MR > MC.

Accepted Answer

A profit-maximizing firm will produce every unit of output for which MR is greater than MC because this is the point where the firm is earning the most profit possible. If MR is less than MC, producing that unit of output would actually result in a loss. Therefore, the firm will only produce up to the point where MR equals MC, and will not produce any more units beyond that point.

Question 4

If fixed cost rises,
A)the profit maximizing level of output would decrease.
B)the profit maximizing level of output would not change.
C)marginal cost rises.
D)variable cost falls.

Accepted Answer

The profit-maximizing level of output is determined by the point where marginal cost equals marginal revenue, which is not directly affected by changes in fixed costs. Fixed costs do not vary with the level of output, so they do not influence the decision about the quantity to produce for profit maximization.

Question 5

If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total profit is
A)$7,000.
B)$2,500.
C)$1,500.
D)$250.

Accepted Answer

Total profit can be calculated by subtracting total cost from total revenue. Total revenue is price per unit times quantity sold, which is $7 * 1,000 = $7,000. Total cost is the sum of total variable cost and total fixed cost. Average variable cost per unit is $3, so total variable cost is $3 * 1,000 = $3,000. Average fixed cost per unit is $1.50, so total fixed cost is $1.50 * 1,000 = $1,500. Therefore, total cost is $3,000 + $1,500 = $4,500. Subtracting total cost from total revenue gives a profit of $7,000 - $4,500 = $2,500.

Question 6

If at an output of 4,000 units Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should
A)reduce output to maximize total profit.
B)increase output until marginal profit falls to zero.
C)do whatever is necessary to increase marginal profit.
D)There is not enough information to make a decision.

Accepted Answer

At an output of 4,000 units, the firm is making an economic profit which means that the total revenue being earned is greater than the total costs being incurred. If the marginal profit per unit is $20, then the firm should increase output until the marginal profit falls to zero. This is because beyond the point where marginal profit is zero, any additional units produced would result in a loss rather than profit. Therefore, the firm should continue increasing output until the point where marginal profit is zero to maximize total profit.

Question 7

If the marginal profit from increasing output by one unit is negative, then to attain an optimum the firm should
A)increase output until marginal profit equals zero.
B)reduce output until marginal profit equals zero.
C)increase output until marginal profit is maximized.
D)reduce output until marginal profit is maximized.

Accepted Answer

If the marginal profit from increasing output by one unit is negative, this indicates that the cost of producing an additional unit is higher than the revenue generated from selling it. Therefore, producing more will result in a decrease in profits. To attain an optimum, the firm should reduce output until marginal profit equals zero. This is because at this point, the last unit produced is generating revenue that just covers the cost of producing it, resulting in maximum profit.

Question 8

If marginal revenue and marginal cost are not equal, profit can be maximized by
A)increasing output if MR > MC.
B)decreasing output if MC > MR.
C)moving to the output where the slopes of TR and TC are equal.
D)All of the above are correct.

Accepted Answer

Profit maximization occurs when marginal revenue (MR) equals marginal cost (MC). If MR > MC, increasing output will increase profit. If MC > MR, decreasing output will increase profit. Therefore, all options are correct as they describe actions to reach the profit-maximizing condition where MR = MC.

Question 9

Marginal profit is the profit
A)earned by a firm that is about to go out of business.
B)calculated directly from the total cost curve.
C)that is added by a one-unit increase in total output.
D)earned for each dollar of cost increase.

Accepted Answer

Marginal profit is the additional profit earned by producing one additional unit of output. It is calculated by subtracting the marginal cost from the marginal revenue. Therefore, it is the profit added by a one-unit increase in total output.

Question 10

Thomas Edison once complained that he was not making a profit selling light bulbs because his plants were operating 25 percent below capacity.He estimated that he could increase output 25 percent with a 2 percent increase in the cost of production.He sold the 25 percent on the foreign market at a price below what he called the "cost of production." We can deduce that Edison really meant
A)Marginal cost was below average cost but less than marginal revenue.
B)Average cost exceeded variable cost, which exceeded marginal revenue.
C)Variable cost exceeded fixed cost but was less than marginal revenue.
D)Marginal cost was above average cost but greater than marginal revenue.

Accepted Answer

Edison's comment about selling the 25 percent on the foreign market at a price below the "cost of production" suggests that he was willing to sell at a price that was lower than the average cost of production. However, since he estimated that he could increase his output by 25 percent with only a 2 percent increase in production costs, we can infer that his marginal cost was lower than his average cost. Additionally, since Edison was not making a profit selling light bulbs, we can infer that his marginal revenue was also lower than his average cost. Therefore, option A is the best choice as it reflects the relationship between Edison's marginal cost, average cost, and marginal revenue.

Question 11

If output is increased beyond the point where total profit is maximized,
A)marginal profit will be zero.
B)marginal profit will be negative.
C)marginal profit will be positive.
D)MR > MC.

Accepted Answer

If output is increased beyond the point where total profit is maximized, it means that the cost of producing an additional unit (marginal cost) will be greater than the revenue earned from producing that unit (marginal revenue). This results in a negative marginal profit. Therefore, choice B is correct.

Question 12

A computer manufacturer sells 1,000 units per month at $500 each.A price cut to $400 is being considered.His marginal cost is constant at $300 per unit.To maintain profits, quantity sold must increase to at least
A)1,500.
B)2,000.
C)2,500.
D)3,000.

Accepted Answer

The manufacturer currently sells 1,000 units per month at $500 each, bringing in total revenue of $500,000 per month. If they were to reduce the price to $400, the total revenue would decrease to $400,000 per month assuming no change in quantity sold.

To maintain their profits, they need to increase the quantity sold so that their total revenue at the new price will still exceed their total costs.

Their marginal cost is constant at $300 per unit, so their total cost at 1,000 units is $300,000.

To maintain their profits, their revenue would need to be at least $300,000 + their desired profit. If we assume their desired profit is the same as before, $200,000, then their new revenue target would be $500,000.

At a price of $400 per unit, they need to sell at least 1,250 units ($500,000 ÷ $400) to reach their revenue target.

Therefore, the manufacturer must increase quantity sold to at least 1,250 units to maintain their profits at the lower price.

Question 13

The marginal cost of Alexa's Guide to Street People and Their Pets is constant at $5.Alexa sells 5,000 copies per year at $20 per copy.She would like to increase readership and hold total profit constant.If the price goes to $15, how many copies must she sell?
A)10,000 
B)9,000 
C)7,500 
D)6,000

Accepted Answer

To hold total profit constant, the increase in the number of copies sold must offset the decrease in price.

Currently, total revenue is:

$20 x 5,000 = $100,000

Total cost is:

$5 x 5,000 = $25,000

Total profit is:

$100,000 - $25,000 = $75,000

If the price goes down to $15, total revenue will be:

$15 x ________ = $100,000

So, we need to solve for the blank to find out how many copies Alexa needs to sell:

$100,000 ÷ $15 = 6,666.67

Since she cannot sell a fraction of a book, she needs to round up. Therefore, she needs to sell at least 7,000 copies to maintain total revenue.

However, we also need to make sure that the increase in the number of copies sold offsets the decrease in price in terms of profit.

Suppose she sells 7,000 copies:

Total revenue will be:

$15 x 7,000 = $105,000

Total cost will be:

$5 x 7,000 = $35,000

Total profit will be:

$105,000 - $35,000 = $70,000

This is less than her current profit of $75,000.

Therefore, she needs to sell more copies to make up for the price decrease.

Suppose she sells 7,500 copies:

Total revenue will be:

$15 x 7,500 = $112,500

Total cost will be:

$5 x 7,500 = $37,500

Total profit will be:

$112,500 - $37,500 = $75,000

This is equal to her current profit, so selling 7,500 copies is the best choice.

Question 14

The typical total profit graphical presentation is shown as
A)a square.
B)a rectangle.
C)a hill, or mound.
D)an S curve.

Accepted Answer

The typical total profit graphical presentation is often shown as a hill or mound. This is because profits typically increase to a point as sales increase, but after reaching a peak, they start to decrease due to increased costs, market saturation, or other factors.

Question 15

Dunston Military Academy has an annual deficit of $250,000.Its 1,000 students pay tuition of $10,000 each per year.The economics faculty has recommended solving the problem by recruiting additional athletes with $5,000 scholarships.Each additional athlete will cost the school $2,500 (equipment, etc.).Assuming the academy agrees, how many athletes are needed to eliminate the deficit?
A)Zero, the deficit cannot be eliminated by giving more scholarships.
B)25 
C)50 
D)100

Accepted Answer

Each new athlete brings in $10,000 in tuition but receives a $5,000 scholarship, netting the academy $5,000. Additionally, there's a cost of $2,500 per athlete, leaving a net gain of $2,500 per athlete. To cover a $250,000 deficit, 100 athletes ($250,000 / $2,500) are needed.

Question 16

When marginal cost exceeds marginal revenue,
A)marginal profit < 0.
B)the firm should increase output.
C)marginal profit + marginal cost > marginal revenue.
D)marginal cost < marginal revenue − marginal profit.

Accepted Answer

When marginal cost exceeds marginal revenue, producing an additional unit will decrease the profit of the firm. In other words, the marginal profit (the difference between marginal revenue and marginal cost) is negative. Therefore, the best choice is to reduce output or stop producing altogether to avoid further losses.

Question 17

Total profit is maximized where
A)MR = MC.
B)marginal profit is zero.
C)the slope of the marginal profit curve is zero.
D)All of the above are correct.

Accepted Answer

Total profit is maximized where marginal revenue equals marginal cost (MR = MC), which is also where marginal profit is zero. Additionally, the slope of the marginal profit curve being zero indicates that marginal profit is neither increasing nor decreasing, aligning with the conditions for profit maximization.

Question 18

Once the profit-maximizing output where MR = MC is determined, price is set by
A)adding a standard markup percentage to marginal cost.
B)the demand curve.
C)making it equal to MR = MC.
D)subtracting the marginal cost from total revenue.

Accepted Answer

Price is determined by the demand curve. While MR = MC gives us the profit-maximizing output, it does not directly determine price. Price is set by the demand curve, as the firm can charge more for its output if demand is high and less if demand is low. Therefore, the best choice is B, as it directly reflects how the firm can maximize revenue by setting the price according to the level of demand.

Question 19

Figure 8-5
 
-From Figure 8-5 one can deduce
A)TR = TC at outputs 10 and 60.
B)MR = MC at output 35.
C)TFC = 100.
D)All of the above are correct.

Accepted Answer

From Figure 8-5, we can see that TR (total revenue) and TC (total cost) intersect at outputs 10 and 60, indicating that TR = TC at these outputs. This implies that choice A is correct. Also, the minimum point of the AVC (average variable cost) curve, which is where MC (marginal cost) intersects AVC, is at output 35, indicating that MR = MC at this output. Hence, choice B is correct. Lastly, we can observe that TFC (total fixed cost) is constant at $100 regardless of the output level. Therefore, choice C is also correct. Hence, the best choice is D, as all options are accurate.

Question 20

At a profit-maximizing output level,
A)marginal revenue minus marginal cost equals zero.
B)marginal profit equals zero.
C)the slope of the total profit curve is zero.
D)All of the above are true.

Accepted Answer

At a profit-maximizing output level, marginal revenue equals marginal cost (A), which implies marginal profit is zero (B), and the slope of the total profit curve is zero (C). Therefore, all statements are true.

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

Figure 8-5 -In Figure 8-5, profits are maximized at output of

Total profit is maximized if the slope of the total profit curve is

A profit-maximizing firm always

If fixed cost rises,

If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of $1.50, and selling its output at $7 per unit, total profit is

If at an output of 4,000 units Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should

If the marginal profit from increasing output by one unit is negative, then to attain an optimum the firm should

If marginal revenue and marginal cost are not equal, profit can be maximized by

Marginal profit is the profit

If output is increased beyond the point where total profit is maximized,

A computer manufacturer sells 1,000 units per month at $500 each.A price cut to $400 is being considered.His marginal cost is constant at $300 per unit.To maintain profits, quantity sold must increase to at least

The marginal cost of Alexa's Guide to Street People and Their Pets is constant at $5.Alexa sells 5,000 copies per year at $20 per copy.She would like to increase readership and hold total profit constant.If the price goes to $15, how many copies must she sell?

The typical total profit graphical presentation is shown as

When marginal cost exceeds marginal revenue,

Total profit is maximized where

Once the profit-maximizing output where MR = MC is determined, price is set by

Figure 8-5 -From Figure 8-5 one can deduce

At a profit-maximizing output level,