True / False
1. Once a firm has selected a price for its product, quantity is decided by consumers and their demand curves.
a.
True
b.
False
True
Easy
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Price and Quantity: One Decision, Not Two
2. Price and output decisions are two aspects of the same choice.
a.
True
b.
False
True
Easy
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Price and Quantity: One Decision, Not Two
3. Economists assume that business firms attempt to maximize their profits.
a.
True
b.
False
True
Easy
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Price and Quantity: One Decision, Not Two
4. Economists assume that business firms have many goals, and profit maximization is just one of them.
a.
True
b.
False
False
DISC: Supply and demand
United States – BPROG: Analytic
5. A firm’s total profit is the difference between its sales and what it pays out in costs.
a.
True
b.
False
True
Easy
6. Economists and accountants have very different definitions of profit.
a.
True
b.
False
True
Easy
economics
7. Economists and accountants use the same definition of profit.
a.
True
b.
False
False
Easy
8. Accounting profit is usually larger than economic profit.
a.
True
b.
False
True
Moderate
9. Accounting profit is usually smaller than economic profit.
a.
True
b.
False
False
Moderate
10. A firm that is earning zero economic profit should go out of business.
a.
True
b.
False
False
Moderate
11. 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.
a.
True
b.
False
True
Moderate
economics
12. A firm’s total revenue is simply the price of its product multiplied by the quantity sold.
a.
True
b.
False
True
Easy
13. Total revenue is equal to quantity multiplied by average revenue.
a.
True
b.
False
True
Easy
economics
14. Total revenue cannot be derived from the demand curve or a demand schedule.
a.
True
b.
False
False
Moderate
15. It can be shown that average revenue and price are always equal.
a.
True
b.
False
True
Easy
16. Average revenue is slightly higher than price.
a.
True
b.
False
False
Easy
17. The average revenue curve can also be described as the demand curve.
a.
True
b.
False
True
Moderate
18. Marginal, average, and total figures are bound together. If any two are known, the third can be calculated.
a.
True
b.
False
True
Moderate
19. The addition to total revenue resulting from one more unit of output is called marginal revenue.
a.
True
b.
False
True
Easy
20. Marginal revenue equals the change in total revenue that is earned by selling one more unit of output.
a.
True
b.
False
True
Easy
21. Marginal revenue is the addition to total revenue resulting from the addition of one unit to total output.
a.
True
b.
False
True
Easy
22. Average cost can be thought of as the cost per unit.
a.
True
b.
False
Easy
23. Average cost is the cost of producing the next unit.
a.
True
b.
False
False
Easy
24. Marginal cost curves and average cost curves are both purely upward sloping.
a.
True
b.
False
False
Moderate
25. Marginal cost is defined by the slope of the total revenue curve.
a.
True
b.
False
False
Easy
26. If marginal cost is less than average cost, average cost must fall when more units are produced.
a.
True
b.
False
True
Moderate
27. If marginal cost of an additional unit of output is greater than average cost, then average cost will rise.
a.
True
b.
False
True
Moderate
28. If marginal cost is rising, then average cost must be rising.
a.
True
b.
False
False
Moderate
29. If average cost is falling, then marginal cost must be falling.
a.
True
b.
False
False
Moderate
30. Average cost equals total cost multiplied by the number of units of output.
a.
True
b.
False
False
Easy
31. Total cost equals average cost multiplied by the quantity of output.
a.
True
b.
False
True
Moderate
32. A firm that sells at a price below average cost is losing money.
a.
True
b.
False
True
Moderate
33. If total profit is at a maximum, then average profit is zero.
a.
True
b.
False
False
Moderate
34. Given total cost and the quantity of output, marginal cost and average cost can be determined.
a.
True
b.
False
True
Easy
35. Profits will be maximized when the slope of the total revenue curve and the slope of the total cost curve equal zero.
a.
True
b.
False
False
Moderate
36. Profits will be maximized when the slope of the total revenue curve and the slope of the total cost curve are equal.
a.
True
b.
False
True
Moderate
37. Total profit is represented by the vertical distance between a total revenue curve and a total cost curve.
a.
True
b.
False
True
Moderate
38. A graph of total profits is always likely to be positively sloped throughout its length.
a.
True
b.
False
False
Easy
39. If the average cost of a product is $10 per unit and the price is $5, the firm is losing money.
a.
True
b.
False
True
Moderate
40. Marginal profit is the slope of the total profit curve.
a.
True
b.
False
True
Easy
41. An optimal level of output is one at which marginal profit > 0.
a.
True
b.
False
False
Moderate
42. A firm should keep producing output as long as the marginal profit is greater than zero, no matter how small it is.
a.
True
b.
False
True
Moderate
43. Marginal profit equals the difference between marginal revenue and marginal cost.
a.
True
b.
False
True
Easy
44. Marginal profit equals the difference between marginal revenue and average cost.
a.
True
b.
False
False
Easy
45. Marginal profit is the additional profit that accrues to the firm when the output rises by one unit.
a.
True
b.
False
True
Easy
46. If the marginal profit of the next unit is negative, the firm should produce more output in order to generate greater
profit.
a.
True
b.
False
False
Easy
47. If a firm’s marginal profit is negative, it should reduce its output level.
a.
True
b.
False
True
Moderate
48. A firm is generally more interested in marginal profits than in total profits.
a.
True
b.
False
False
Moderate
49. A firm should use marginal analysis when making a price-output decision.
a.
True
b.
False
True
Easy
50. A firm that decides to make a price cut assumes that marginal profit is negative.
a.
True
b.
False
False
Moderate
51. If marginal profit is zero, then total profit is at a maximum.
a.
True
b.
False
True
Moderate
52. If marginal profit is zero, then average profit is at a maximum.
a.
True
b.
False
False
Moderate
53. Profit is maximized at the output at which marginal revenue equals marginal cost.
a.
True
b.
False
True
Moderate
54. Profit is maximized at the output at which marginal revenue exceeds marginal cost by the greatest margin.
a.
True
b.
False
False
Easy
55. If total profit is maximized, then marginal cost must equal marginal revenue.
a.
True
b.
False
True
Easy
56. Profit maximization occurs when MC = MR.
a.
True
b.
False
True
Easy
57. Net benefit is equal to total benefit minus marginal cost.
a.
True
b.
False
False
Moderate
58. The rule of equating marginal benefit with marginal cost is proper for economics, but it does not describe the way in
which people make non-economic decisions.
a.
True
b.
False
False
Moderate
59. All business firms should consider their fixed costs in determining the prices they set.
a.
True
b.
False
False
Moderate
60. When a firm’s fixed costs increase it should raise its prices in order to maximize profits.
a.
True
b.
False
Easy
61. Any change in a firm’s fixed costs will change its profit-maximizing level of output.
a.
True
b.
False
False
Easy
62. In the case study discussed in the chapter, the electronics firm was losing money by selling its calculators at a price
that was below average cost.
a.
True
b.
False
False
Moderate
63. In the case study discussed in the chapter, the electronics firm was actually enhancing its profits by selling calculators
at a price that was below average cost.
a.
True
b.
False
True
Moderate
64. Firms can make decisions using marginal analysis even if they do not know the shape of a demand curve.
a.
True
b.
False
True
Moderate
65. Firms need to know the shape of a demand curve to use marginal analysis.
a.
True
b.
False
False
Moderate
economics
66. Marginal analysis is useful in economics, but not in other areas of life.
a.
True
b.
False
False
Easy
67. The assumption that firms attempt to maximize profits will yield good predictions even if firms sometimes pursue
other goals.
a.
True
b.
False
True
Moderate
68. Economists use a model that is a literal description of business’ behavior.
a.
True
b.
False
False
Easy
69. Marginal, average, and total figures are unrelated.
a.
True
b.
False
False
Easy
70. If a firm’s average cost is currently $100, and the marginal cost is $95, then the average cost is currently falling.
a.
True
b.
False
True
Moderate
71. Most business people calculate marginal cost and marginal revenue to decide how much to produce.
a.
True
b.
False
False
Moderate
The study of economics, and defi – The study of economics, and definitions of economics
The Theory and Reality: A Word of Caution
72. Most consumers in stores use marginal analysis to make their buying decisions.
a.
True
b.
False
False
Moderate
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Theory and Reality: A Word of Caution
73. Business people often use “hunches” and intuition to make decisions regarding what to produce.
a.
True
b.
False
True
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Theory and Reality: A Word of Caution
Multiple Choice
74. Decision making that seeks only solutions that are acceptable is called
a.
optimizing.
b.
satisficing.
c.
benchmarking.
d.
maximizing.