Question 1

Average cost

Accepted Answer

The average cost curve is U-shaped, declining at first as output increases and then hitting a minimum before increasing as output continues to increase. This is because fixed costs become spread out over more units of output at first, leading to a decline in average cost, but eventually diminishing returns to variable inputs cause marginal costs to increase and average costs to rise with output. The marginal cost curve intersects the average cost curve at its minimum point. The statement that average cost is always smaller than marginal cost is incorrect.

Question 2

Marginal profit is the profit

Accepted Answer

Marginal profit is the additional profit earned by a firm from selling one more unit of output or by increasing total output by one unit. Therefore, the correct choice is C.

Question 3

Marginal profit is the addition to a firm's total profit from a

Accepted Answer

Marginal profit refers to the additional profit earned from producing and selling one additional unit of output. Therefore, the correct choice is B, as it refers to a one-unit change in output. The other options are not correct as they do not directly relate to the concept of marginal profit.

Question 4

Profit can be maximized only where marginal revenue equals

Accepted Answer

Profit maximization occurs when marginal revenue equals marginal cost, as this indicates the point at which the revenue from selling one more unit of the good or service is equal to the cost of producing that unit. When marginal revenue is greater than marginal cost, producing more units will generate more revenue than cost, increasing profit. When marginal revenue is less than marginal cost, producing more units will generate more cost than revenue, reducing profit. Having marginal revenue equal to average cost or total cost does not necessarily result in profit maximization.

Question 5

Total profit is maximized

Accepted Answer

Total profit is maximized where the difference between total revenue and total cost is greatest. This is because profit increases as revenue increases and cost decreases, and the greatest gap between revenue and cost indicates the highest profit.

Question 6

The typical total profit graphical presentation is shown as

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 7

The total cost curve generally has

Accepted Answer

The answer of The total cost curve generally has
...

Question 8

Thomas Edison once said that he began making real profit on light bulbs when he dumped his surplus on the European market at less than the "cost of production." From this we can deduce Edison

Accepted Answer

Edison's statement suggests that he was aware of the concept of marginal cost (the cost of producing one additional unit) and understood that he could still make a profit by selling his surplus at a price that was lower than the average cost of production for all the units he produced. This implies that he understood the importance of considering both marginal and average cost in setting prices and maximizing profit.

Question 9

A company draws its total cost curve and total revenue curve on the same graph.If the firm wishes to maximize profits,it will select the output at which the

Accepted Answer

The profit maximization point for a firm occurs where the vertical distance between the total revenue curve and the total cost curve is greatest. This is because profit is calculated as total revenue minus total cost, and the largest vertical distance represents the highest profit.

Question 10

Figure 8-3
 
-Figure 8-3 shows a firm's total profit function.At an output of 40,the firm's total profit equals ____.

Accepted Answer

The answer of Figure 8-3
 
-Figure 8-3 shows a firm's...

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

From the figure, we can see that the Total Revenue (TR) and Total Cost (TC) lines intersect at the same level for outputs 10 and 60, indicating that TR is equal to TC at those levels. This satisfies option A. 
Similarly, the Marginal Revenue (MR) and Marginal Cost (MC) lines intersect at output 35, indicating that MR is equal to MC at that level. This satisfies option B.
Finally, we can see from the figure that the Total Fixed Cost (TFC) line intercepts the y-axis at the value of 100, indicating that the TFC is 100. This indirectly satisfies option C. Hence, all of the given options are correct, and the answer is D.

Question 13

Figure 8-2
 
-Figure 8-2 shows a manufacturer's total profit curve.To maximize her total profit,the manufacturer should produce ____ units of output.

Accepted Answer

The answer of Figure 8-2
 
-Figure 8-2 shows a manufacturer's...

Question 14

Figure 8-4
 
-In Figure 8-4 at output level 2,

Accepted Answer

At output level 2, the marginal revenue (MR) curve intersects the marginal cost (MC) curve at a point where MR is greater than MC. This implies that producing an additional unit of output will bring in more revenue than it costs to produce it, leading to greater profits.

Question 15

In the short run,which are most important in determining changes in output?

Accepted Answer

The answer of In the short run,which are most important...

Question 16

If MC > MR,

Accepted Answer

When Marginal Cost (MC) is greater than Marginal Revenue (MR), it means that producing an additional unit of output costs more than the revenue it generates. Therefore, to maximize profit, a firm should reduce output.

Question 17

The demand curve facing Company ABC is perfectly elastic.What is its marginal revenue?

Accepted Answer

When the demand curve is perfectly elastic, the price remains constant regardless of the quantity sold, meaning the marginal revenue (the additional revenue from selling one more unit) is equal to the price, which is also the average revenue.

Question 18

To find its profit-maximizing output level,a firm should operate where

Accepted Answer

In order to maximize profits, a firm should produce where marginal revenue (MR) equals marginal cost (MC). This is because producing an additional unit will add to revenue (MR), but also to costs (MC), and the firm should continue to produce until the point where the additional revenue from the output produced equals the additional cost of producing it, maximizing profits. Therefore, choice B, MC = MR, is the correct answer. Choices A, C, and D are incorrect as they do not take into account the relationship between revenue and cost.

Question 19

Figure 8-1
 
-Which graph in Figure 8-1 shows a typical firm's total revenue and total cost curves?

Accepted Answer

Option C is correct because it shows the total cost curve starting above the origin (indicating fixed costs) and increasing at an increasing rate, and the total revenue curve starting from the origin (indicating no revenue at zero output) and increasing linearly, which is typical for firms selling goods at a constant price.

Question 20

Marginal cost

Accepted Answer

Marginal cost is the increase in total cost resulting from a one-unit increase in output. It is calculated as DTC/DQ and equals the slope of the total cost curve. Therefore, all of the above statements are correct.

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