Question 1

Which of the following is true of a firm facing a downward sloping demand curve?
A) In order to sell more units, the firm needs to lower its price.
B) A price cut will reduce total revenue.
C) The firm's total revenue and price are directly correlated.
D) The marginal revenue from each unit sold is constant.
E) The firm faces a constant marginal cost curve.

Accepted Answer

A downward sloping demand curve indicates that as the price of the product increases, the quantity demanded decreases. Therefore, to sell more units, the firm needs to lower its price to attract more buyers.

Question 2

If a firm's profit is given by π = -150 + 360Q - 36Q², then its optimal output is: A) 12 units. B) 5 units. C) 2 units. D) 20 units. E) 36 units.

Accepted Answer

To find the optimal output, we need to find the quantity that maximizes profit. We can do this by taking the derivative of profit with respect to quantity and setting it equal to zero:

π' = 360 - 72Q = 0
Q = 5

This means that the firm's optimal output is 5 units, which will maximize its profit.

Question 3

The following table shows the total revenue (in dollars) and total cost (in dollars) from the production and sale of different units of a product.
Table 2-1
 $\begin{array} { | c | c | c | c | } 
\hline \text { Price } & \text { Quantity } & \text { Total Revenue } & \text { Total Cost } \
\hline 15 & 1 & 15 & 3 \
\hline 14 & 2 & 28 & 7 \
\hline 13 & 3 & 39 & 12 \
\hline 12 & 4 & 48 & 18 \
\hline 11 & 5 & 55 & 25 \
\hline 10 & 6 & 60 & 33 \
\hline
\end{array}$
-Refer to Table 2-1. What is the marginal revenue associated with the sale of the 5th unit of the good?
A) $55
B) $8
C) $7
D) $48
E) $4

Accepted Answer

Marginal revenue is the change in total revenue from selling one more unit. The total revenue from 4 units is $48, and from 5 units is $55. Thus, the marginal revenue for the 5th unit is $55 - $48 = $7.

Question 4

The following table shows the total revenue and total cost (in dollars) from different sales volumes of the good.
Table 2-1
 $\begin{array} { | c | c | c | c | } 
\hline \text { Price } & \text { Quantity } & \text { Total Revenue } & \text { Total Cost } \
\hline 15 & 1 & 15 & 3 \
\hline 14 & 2 & 28 & 7 \
\hline 13 & 3 & 39 & 12 \
\hline 12 & 4 & 48 & 18 \
\hline 11 & 5 & 55 & 25 \
\hline 10 & 6 & 60 & 33 \
\hline
\end{array}$

-Refer to Table 2-1. What is the firm's profit from selling 3 units of the good?
A) $13
B) $11
C) $12
D) $39
E) $27

Accepted Answer

The answer of The following table shows the total revenue...

Question 5

If a firm's demand function is of the form P = a - bQ, what is its marginal revenue equation?
A) MR = a - Q
B) MR = a - 2bQ
C) MR = a - 2Q
D) MR = a - 2b
E) MR = a + 2bQ

Accepted Answer

The marginal revenue (MR) equation for a linear demand curve of the form P = a - bQ is derived by differentiating the total revenue (TR = P*Q = aQ - bQ^2) with respect to Q, which gives MR = a - 2bQ.

Question 6

Suppose a firm's inverse demand function is P = 40 - 8Q. What is the firm's revenue function? A) R = 40Q - 8Q² B) R = 40 - 16Q C) R = -8Q D) R = 40/Q - 8 E) R = 40Q - 4Q²

Accepted Answer

The revenue function is found by multiplying the price function by the quantity, so R = P * Q = (40 - 8Q) * Q = 40Q - 8Q^2.

Question 7

The demand for a product is given by P = 1,750 - 25Q. If the firm wishes to sell 50 units, each unit should be priced at:
A) $100.
B) $200,
C) $300.
D) $400.
E) $500.

Accepted Answer

The answer of The demand for a product is given...

Question 8

Suppose a firm's profit is given by the equation π = -200 + 80Q - .2Q². Which of the following is true? A) The firm's marginal profit is given by the equation: M$\pi$= 80 - .2Q. B) The firm's profit-maximizing output is Q = 400. C) The firm's profit-maximizing output is Q = 200. D) The firm's marginal profit is given by the equation: M$\pi$= 80 - 2Q. E) The firm's profit-maximizing output is Q = 800.

Accepted Answer

The firm's profit-maximizing output is found by setting the derivative of the profit function (marginal profit) to zero: dπ/dQ = 80 - 0.4Q = 0, solving gives Q = 200.

Question 9

Which of the following correctly defines marginal cost?
A) Marginal cost is the addition made to fixed cost when an extra unit is produced.
B) Marginal cost is the additional cost of producing an extra unit of output.
C) Marginal cost is the additional cost of increasing the scale of production in the long run.
D) Marginal cost is the difference between price and marginal revenue for the last unit sold.
E) Marginal cost is the same as the firm's variable cost at all levels of output.

Accepted Answer

Marginal cost is the additional cost incurred in producing one more unit of output. It includes both variable costs (such as labor and materials) and any additional fixed costs (such as rent for a larger factory). Marginal cost is important because it helps firms determine how much output to produce in order to maximize profits.

Question 10

A firm's demand curve is given by Q = 800 - 2P, where P = price and Q = quantity. Therefore, its inverse demand equation is:
A) MR = 800 - 4P
B) P = 800 - 2Q
C) P = 400 - .5Q
D) P = 800 - .5Q
E) 800 = Q + 2P

Accepted Answer

To find the inverse demand equation, solve the given demand equation for P. Starting with Q = 800 - 2P, rearrange to get P on one side: 2P = 800 - Q, then divide everything by 2 to isolate P: P = 400 - 0.5Q.

Question 11

A firm's total revenue function is given by R = 100 + 100Q - 2Q². At Q = 10, which of the following is true? A) The firm's marginal revenue is $80. B) The firm's marginal revenue is constant. C) The firm's average revenue is $50. D) The firm's total revenue is $500. E) The firm's marginal revenue is $60.

Accepted Answer

The answer of A firm's total revenue function is given...

Question 12

Which of the following correctly defines marginal revenue?
A) Marginal revenue is the price at which the firm sells the last unit of the good.
B) Marginal revenue is the change in revenue from a unit increase in the price of the good.
C) Marginal revenue is the additional revenue from a unit increase in output and sales.
D) Marginal revenue is the additional revenue earned from an increase in demand for the good.
E) Marginal revenue is the difference between price and marginal cost for the last unit sold.

Accepted Answer

Marginal revenue is defined as the additional revenue that a firm receives from selling one more unit of a good or service. It is calculated as the change in total revenue divided by the change in quantity sold. Choices A, B, D, and E do not accurately describe this concept.

Question 13

According to the model of the firm, the management's main goal is to:
A) increase revenue from sales.
B) maximize profit.
C) maximize its market share.
D) minimize its variable cost per unit.
E) maintain a steady and predictable growth in earnings.

Accepted Answer

According to the traditional model of the firm, the main goal of the management is to maximize profit. This means that the management will focus on increasing revenue and reducing costs to achieve the highest possible profit level. Maximizing market share or maintaining steady growth in earnings may be secondary goals that contribute to the main objective of profit maximization. Minimizing variable cost per unit is also important for profit maximization, but it is only a component of cost reduction strategies aimed at increasing profit.

Question 14

The demand for a product is given by Q = 600 - 30P. At P = $15, the firm sells:
A) 100 units.
B) 150 units.
C) 300 units.
D) 450 units.
E) 600 units.

Accepted Answer

Substitute P = $15 into the demand equation: Q = 600 - 30($15) = 150 units. Therefore, the firm sells 150 units at $15 per unit.

Question 15

For a downward-sloping demand curve, the associated marginal revenue curve:
A) coincides with the demand curve.
B) lies below and is parallel to the demand curve.
C) has twice the slope as the demand curve.
D) is positive for all levels of sales.
E) is parallel to the quantity axis.

Accepted Answer

The marginal revenue curve for a downward-sloping demand curve has twice the slope of the demand curve and lies below it.

Question 16

Suppose, at its current output level, a firm's marginal profit is positive. Therefore, to maximize profit, it should:
A) decrease output until marginal profit is zero.
B) increase output because MR is less than MC.
C) increase both its output and its price.
D) increase output because MR is greater than MC.
E) increase output until it is producing at full capacity.

Accepted Answer

If a firm's marginal profit is positive, it means that each additional unit produced adds more to the total profit than the cost of producing it. Thus, the firm should continue to increase its output until the marginal profit becomes zero. This is because marginal profit is maximized when MC=MR. Since the marginal profit is positive, it means MR is greater than MC, and therefore the firm should keep increasing its output until the two are equal. Therefore, choice D is the correct option.

Question 17

Given that a firm's inverse demand function is P = 100 - 5Q and total cost is given by C = 550 + 10Q, what is the firm's profit-maximizing level of output?
A) 10 units
B) 15 units
C) 9 units
D) 8 units
E) 5 units

Accepted Answer

To maximize profit, we need to find the level of output where marginal revenue (MR) equals marginal cost (MC).

First, we need to find the firm's marginal revenue. The inverse demand function can be rewritten as Q = 20 - 0.2P, which means that the firm's total revenue (TR) is TR = P * Q = (100 - 5Q) * Q = 100Q - 5Q^2. Taking the derivative of this with respect to Q, we get the marginal revenue function: MR = 100 - 10Q.

Next, we need to find the firm's marginal cost. Taking the derivative of the total cost function with respect to Q, we get the marginal cost function: MC = 10.

Setting MR equal to MC, we get: 
100 - 10Q = 10 
Solving for Q, we get Q = 9.

Therefore, the firm's profit-maximizing level of output is 9 units.

Question 18

According to the law of demand, if a firm reduces the price of its good:
A) consumers in the market will demand more units of the good.
B) some consumers will exit the market.
C) consumers will demand fewer units than before the price cut.
D) the quantity of goods produced and sold by the firm will decline.
E) competing firms will reduce prices.

Accepted Answer

According to the law of demand, there is an inverse relationship between price and quantity demanded. Therefore, if a firm reduces the price of its good, consumers in the market will demand more units of the good. This is because the lower price makes the good relatively more affordable or attractive compared to other goods, leading to an increase in the quantity demanded.

Question 19

The following table shows the total revenue and total cost (in dollars) from different sales volumes of the good.
Table 2-1
 $\begin{array} { | c | c | c | c | } 
\hline \text { Price } & \text { Quantity } & \text { Total Revenue } & \text { Total Cost } \
\hline 15 & 1 & 15 & 3 \
\hline 14 & 2 & 28 & 7 \
\hline 13 & 3 & 39 & 12 \
\hline 12 & 4 & 48 & 18 \
\hline 11 & 5 & 55 & 25 \
\hline 10 & 6 & 60 & 33 \
\hline
\end{array}$

-Refer to Table 2-1. What is the marginal profit of the firm from the sale of the 3rd unit of the good?
A) $9
B) $6
C) $2
D) $5
E) $21

Accepted Answer

The answer of The following table shows the total revenue...

Question 20

The following table shows the total revenue (in dollars) and total cost (in dollars) from the production and sale of different units of a product.
Table 2-1
 $\begin{array} { | c | c | c | c | } 
\hline \text { Price } & \text { Quantity } & \text { Total Revenue } & \text { Total Cost } \
\hline 15 & 1 & 15 & 3 \
\hline 14 & 2 & 28 & 7 \
\hline 13 & 3 & 39 & 12 \
\hline 12 & 4 & 48 & 18 \
\hline 11 & 5 & 55 & 25 \
\hline 10 & 6 & 60 & 33 \
\hline
\end{array}$
-Refer to Table 2-1. What is the profit-maximizing level of output for the firm?
A) 3 units
B) 2 units
C) 1 unit
D) 5 units
E) 6 units

Accepted Answer

Profit is maximized where the difference between total revenue and total cost is the greatest. By examining the table, we can calculate the profit for each level of output (total revenue - total cost). The profits are as follows: for 1 unit = $12, for 2 units = $21, for 3 units = $27, for 4 units = $30, for 5 units = $30, and for 6 units = $27. Thus, the profit-maximizing level of output is at 4 or 5 units. However, since 4 units is not an option, the correct answer is 5 units (D).

Quiz 2: Optimal Decisions Using Marginal Analysis

Which of the following is true of a firm facing a downward sloping demand curve?

If a firm's profit is given by π = -150 + 360Q - 36Q2, then its optimal output is:

If a firm's demand function is of the form P = a - bQ, what is its marginal revenue equation?

Suppose a firm's inverse demand function is P = 40 - 8Q. What is the firm's revenue function?

The demand for a product is given by P = 1,750 - 25Q. If the firm wishes to sell 50 units, each unit should be priced at:

Suppose a firm's profit is given by the equation π = -200 + 80Q - .2Q2. Which of the following is true?

Which of the following correctly defines marginal cost?

A firm's demand curve is given by Q = 800 - 2P, where P = price and Q = quantity. Therefore, its inverse demand equation is:

A firm's total revenue function is given by R = 100 + 100Q - 2Q2. At Q = 10, which of the following is true?

Which of the following correctly defines marginal revenue?

According to the model of the firm, the management's main goal is to:

The demand for a product is given by Q = 600 - 30P. At P = $15, the firm sells:

For a downward-sloping demand curve, the associated marginal revenue curve:

Suppose, at its current output level, a firm's marginal profit is positive. Therefore, to maximize profit, it should:

Given that a firm's inverse demand function is P = 100 - 5Q and total cost is given by C = 550 + 10Q, what is the firm's profit-maximizing level of output?

According to the law of demand, if a firm reduces the price of its good:

If a firm's profit is given by π = -150 + 360Q - 36Q², then its optimal output is:

Suppose a firm's profit is given by the equation π = -200 + 80Q - .2Q². Which of the following is true?

A firm's total revenue function is given by R = 100 + 100Q - 2Q². At Q = 10, which of the following is true?