Econ ch8

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

B. 2,000.

An airline is considering adding a flight from Chicago to Sioux Falls. Total cost of the flight is $5,500. Variable cost is $2,000. Revenue from the flight is expected to be $3,000. Should the flight be added? A. No; the revenue ($3,000) is below the cost ($5,500). B. Yes; profit increases by $1,000 ($3,000 - $2,000). C. Yes; profit increases by $3,000. D. No; the addition to profit is very small and not worth the effort.

B. Yes; profit increases by $1,000 ($3,000 - $2,000).

Joe and Ed go to a diner that sells hamburgers for $5 and hot dogs for $3. They agree to split the lunch bill evenly. Ed chooses a hot dog. The marginal cost to Joe then of ordering a hamburger instead of a hot dog is _________ . A. $2.50. B. $3. C. $1. D. $2.

C. $1.

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. $250. C. $2,500. D. $1,500.

C. $2,500.

If MC > MR, A. marginal profit is positive. B. there are losses. C. output should be reduced. D. the total profit curve has yet to peak.

C. output should be reduced.

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 A. Edison had an odd definition of the term "profit." B. Edison did not understand the difference between fixed and variable cost. C. Edison was crazy and did not want to maximize profits. D. Edison understood the difference between marginal and average cost.

D. Edison understood the difference between marginal and average cost.

If a person who weighs 100 lbs. is riding in an elevator and is joined by a person weighing 120 lbs., what happens to the average weight of persons in the elevator? A. It stays the same. B. It falls. C. More information is needed to determine the answer. D. It rises.

D. It rises.

In arriving at the quantity of output and price of its product, a company A. has no control of either quantity or price. B. generally leaves both quantity and price decisions to consumers. C. makes two decisions by setting both optimal output and optimal price. D. chooses either output or price, and consumer demand determines the other.

D. chooses either output or price, and consumer demand determines the other.

To find a firm's total revenue at every quantity, all you need to know is A. its profit-maximizing price and quantity. B. its total profit curve. C. the demand curve for its product and its total cost. D. the demand curve for its product.

D. the demand curve for its product.

If a profit-maximizing firm's fixed cost of producing widgets falls, A. its marginal cost curve shifts down. B. its total cost curve is unaffected. C. the firm will produce more widgets. D. the firm's average profit per widget produced rises.

D. the firm's average profit per widget produced rises.

An airline can profit by offering standby customers an unsold seat at a substancial discount just before takeoff because A. such passengers add more to profits than do those with reserved seats. B. additional passengers are needed to balance the load. C. additional passengers add little to fixed costs. D. the marginal cost of additional passengers is very small.

D. the marginal cost of additional passengers is very small.

A graph of total profits is always likely to be positively sloped throughout its length. True or False

False

Profit is maximized at the output at which marginal revenue exceeds marginal cost by the greatest margin. True or False

False

When a firm's fixed costs increase, it should raise its prices in order to maximize profits. True or False

False

A firm that sells at a price below average cost is losing money. True or False

True

A small business owner who is earning a positive economic profit, no matter how small, is doing better than if she sold her business and went to work for another firm. True or False

True

Firms can make good decisions using marginal analysis even if they do not know the shape of their product's demand curve. True or False

True

If a firm's marginal profit is negative, it should reduce its output level. True or False

True

Once a firm has selected a price for its product, quantity is decided by consumers and their demand curves. True or False

True

Susan quit her job as a marketing professor to become a professional mountaineer. She gave up her salary ($30,000) and invested her retirement fund of $50,000 (which was earning 10% interest) in this venture. After all expenses, her net earnings as a mountaineer were $35,000. Susan's economic profits were A. zero. B. $2,000. C. $5,000. D. $35,000.

A. zero.