United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Price and Quantity: One Decision, Not Two
75. In arriving at the quantity of output and price of its product, a company
a.
chooses either output or price, and consumer demand determines the other.
b.
has no control over either quantity or price.
c.
makes two decisions by setting both optimal output and optimal price.
d.
generally leaves both quantity and price decisions to consumers.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Price and Quantity: One Decision, Not Two
76. A firm can choose a quantity of output, and the price is then determined by
a.
the government.
b.
the supply schedule.
c.
consumers’ demand.
d.
the average cost.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Price and Quantity: One Decision, Not Two
77. Management gets two numbers (price and quantity) from one decision because
a.
the marginal utility of goods is fixed.
b.
producers use both technical and financial information.
c.
the demand curve consists of price and quantity pairs.
d.
the average cost curve has only one low point.
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Price and Quantity: One Decision, Not Two
78. The goal of the business firm is maximization of ____, and the goal of the consumer is maximization of ____.
a.
b.
c.
d.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Price and Quantity: One Decision, Not Two
79. Price and quantity decisions made by a company have vital influences on
a.
the firm’s labor requirements.
b.
consumer response to the product.
c.
future success of the company.
d.
All of the above are correct.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Price and Quantity: One Decision, Not Two
80. Profit maximization is
a.
the only motive of any firm’s management.
b.
a behavioral assumption to simplify analysis.
c.
the same as satisficing.
d.
a literal description of a firm’s behavior.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
81. Ben quit his job as an economics professor to become a golf professional. He gave up his salary ($40,000) and
invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture. After all expenses, his net
winnings (profit) were $45,000. Ben’s economic profits were
a.
$45,000.
b.
$5,000.
c.
$2,000.
d.
zero.
Moderate
82. Sally leaves her $24,000 secretarial position with a company and invests her savings of $15,000 (on which she was
earning 6 percent interest) in her own Ready Sec agency. After expenses, her net income was $28,900. Her economic
profit was
a.
$4,900.
b.
$4,000.
c.
$28,900.
d.
−$10,100.
Difficult
83. Maureen left her teaching job, which paid $30,000 per year, and invested $20,000 of her retirement fund (which was
earning 10 percent interest) in a new real estate business. Her accountant predicted a $60,000 revenue the first year. Her
husband, an economist, forecast her profit to be
a.
$10,000.
b.
$28,000.
c.
$32,000.
d.
$60,000.
Difficult
Models
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Total Profit: Keep Your Eye on the Goal
BLOOMS: Application
84. Total profit
a.
is the difference between sales revenue and costs.
b.
maximization is always the goal of every firm.
c.
is always defined the same by both economists and accountants.
d.
is maximized when sales are maximized.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Total Profit: Keep Your Eye on the Goal
85. Total profit equals
a.
TR − TC.
b.
average profit times total output.
c.
total sales revenue minus total cost.
d.
All of the above are correct.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Total Profit: Keep Your Eye on the Goal
86. Total profit = Total revenue − Total cost (including opportunity cost).
Total profit defined in this way is called
a.
accounting profit.
b.
economic profit.
c.
absolute profit.
d.
relative profit.
DISC: The study of economics, an – DISC: The study of economics, and definitions in
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Total Profit: Keep Your Eye on the Goal
87. The difference between economic profit and accountant’s definition of profit is that an economist’s total cost counts
the ____ of inputs.
a.
absolute value
b.
overheads
c.
opportunity cost
d.
gross cost
c
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
88. Economic profit of a decision in question equals
a.
accounting profit of the decision in question + its opportunity cost.
b.
accounting profit of the decision in question − accounting profit of the best available alternative.
c.
accounting profit of the decision in question + its opportunity cost + overheads.
d.
its opportunity cost + accounting profit of the best available alternative.
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
89. For any firm, price always equals
a.
average revenue.
b.
marginal revenue.
c.
marginal cost.
d.
marginal profit.
a
Easy
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
90. The demand curve facing a firm is also the firm’s
a.
total utility curve.
b.
average revenue curve.
c.
average utility curve.
d.
total revenue curve.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
91. Marginal revenue is the addition to a firm’s revenue from
a.
a $1 change in price.
b.
a one-unit change in output.
c.
the sale of inferior output.
d.
a $1 reduction in marginal cost.
United States – BPROG: Analytic
Marginal costs & benefits
Economic Profit and Optimal Decision Making
92. To find a firm’s total revenue at every quantity, all you need to know is
a.
the demand curve for its product.
b.
the demand curve for its product and its total cost.
c.
its profit-maximizing price and quantity.
d.
its total profit curve.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
93. The demand curve for a firm’s product is also the curve showing
a.
total revenue.
b.
marginal revenue.
c.
average revenue.
d.
average profits.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
94. Total revenue
a.
can be calculated directly from the demand curve.
b.
can be calculated directly from the average revenue curve.
c.
is found by multiplying price times quantity.
d.
All of the above are correct.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Economic Profit and Optimal Decision Making
95. Company A manufactures a single automotive component. It had total revenue of $100,000 and an economic profit of
$20,000. What is the price of the component it manufactures?
a.
($100,000/quantity sold).
b.
($100,000/quantity produced).
c.
($100,000/quantity sold) − average cost of the product
d.
($100,000/quantity produced) − average cost of the product
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Economic Profit and Optimal Decision Making
96. Which of the following is true if the opportunity cost of producing a particular good is less than its accounting profit?
a.
Economic profit is zero.
b.
Economic profit is negative.
c.
Economic profit is positive.
d.
Economic profit cannot be determined.
c
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
97. Average revenue is equal to
a.
TR/Q.
b.
(P × Q)/P.
c.
TR × Q
d.
All of the above are correct.
a
Moderate
DISC: Marginal costs & benefits
United States – Analytic – BB-Legal
Marginal costs & benefits
Economic Profit and Optimal Decision Making
98. If the output of a firm is increased by one unit, the revenue addition is called
a.
total revenue.
b.
average revenue.
c.
marginal revenue.
d.
economic profit.
c
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
99. A firm can always increase its output by one unit at a marginal cost of $10. Its marginal cost curve is
a.
a horizontal line.
b.
a vertical line.
c.
a ray with slope equal to 10.
d.
exactly one-tenth as steep as its total cost curve.
a
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
100. 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.
$1.
b.
$2.
c.
$2.50.
d.
$3.
c
Moderate
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Economic Profit and Optimal Decision Making
BLOOMS: Application
101. Whenever average cost exceeds marginal cost,
a.
average cost is rising.
b.
average cost is falling.
c.
marginal cost is rising.
d.
marginal cost is falling.
Moderate
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
102. A grocery store sells soup for $1.50 a can, or $2.50 for two cans. To a customer, the marginal cost of buying the
second can of soup is
a.
$1.
b.
$1.25.
c.
$1.50.
d.
$2.50.
a
Easy
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Economic Profit and Optimal Decision Making
103. Average cost equals
a.
change in total cost/change in quantity.
b.
total cost/quantity.
c.
total cost − total variable cost.
d.
total cost − total fixed cost.
Easy
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Economic Profit and Optimal Decision Making
104. Average cost
a.
is always larger than marginal cost.
b.
declines for some range of output, hits a minimum, and then increases.
c.
is always smaller than marginal cost.
d.
is total cost/price of the product.
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Economic Profit and Optimal Decision Making
105. 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
a.
did not want to maximize profit.
b.
understood the difference between marginal and average cost.
c.
had a different definition of the term “profit.”
d.
did not understand the difference between fixed and variable cost.
DISC: Costs of production
United States – BPROG: Reflective Thinking – BPROG: Analysis
Costs of production
Economic Profit and Optimal Decision Making
106. Marginal cost
a.
equals the slope of the total cost curve.
b.
is calculated as DTC/DQ.
c.
is the increase in total cost resulting from a one-unit increase in output.
d.
All of the above are correct.
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Economic Profit and Optimal Decision Making
107. The total cost curve generally has
a.
slope values which first decrease and then increase rapidly.
b.
slope values which first increase rapidly and then decrease.
c.
increasing slope values.
d.
decreasing slope values.
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Economic Profit and Optimal Decision Making
Figure 8-1
108. Which graph in Figure 8-1 shows a typical firm’s total revenue and total cost curves?
a.
(a)
b.
(b)
c.
(c)
d.
(d)
c
Easy
Figure 8-2
109. Figure 8-2 shows a manufacturer’s total profit curve. To maximize her total profit, the manufacturer should produce
____ units of output.
a.
10
b.
12
c.
16
d.
18
Easy
Economic Profit and Optimal Decision Making
BLOOMS: Application
Figure 8-3
110. Figure 8-3 shows a firm’s total profit function. At an output of 40, the firm’s total profit equals ____.
a.
10
b.
40
c.
200
d.
400
DISC: Reading and interpreting g – DISC: Reading and interpreting graphs
United States – BPROG: Analytic
Reading and interpreting graphs
Economic Profit and Optimal Decision Making
BLOOMS: Application
111. 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
a.
vertical distance between the two curves is greatest.
b.
total cost curve cuts the total revenue curve.
c.
horizontal distance between the two curves is greatest.
d.
slope of the total revenue curve is greatest.
DISC: Reading and interpreting g – DISC: Reading and interpreting graphs
United States – BPROG: Analytic
Reading and interpreting graphs
Economic Profit and Optimal Decision Making
BLOOMS: Application
Figure 8-4
112. In Figure 8-4 at output level 2,
a.
MR > MC.
b.
the slope of the total profit curve is negative.
c.
there are negative profits.
d.
marginal revenue is rising compared to output.
DISC: Reading and interpreting g – DISC: Reading and interpreting graphs
United States – BPROG: Analytic
Reading and interpreting graphs
Economic Profit and Optimal Decision Making
BLOOMS: Application
113. The demand curve facing Company ABC is perfectly elastic. What is its marginal revenue?
a.
Equal to the average revenue.
b.
Less than the price.
c.
Higher than the price.
d.
Higher than the average revenue.
DISC: Reading and interpreting g – DISC: Reading and interpreting graphs
United States – BPROG: Analytic
Reading and interpreting graphs
Economic Profit and Optimal Decision Making
114. Total profit is maximized
a.
where the difference between total revenue and total cost is greatest.
b.
at that output level where marginal revenue equals average cost.
c.
where total revenue is at a maximum.
d.
at the point where all variable costs are covered.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Economic Profit and Optimal Decision Making
115. The typical total profit graphical presentation is shown as
a.
a square.
b.
a rectangle.
c.
a hill, or mound.
d.
an S curve.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Economic Profit and Optimal Decision Making
116. To find its profit-maximizing output level, a firm should operate where
a.
AVC = MC.
b.
MC = MR.
c.
TFC = TVC.
d.
AFC = AVC.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Marginal Analysis and Maximization of Total Profit
117. Profit can be maximized only where marginal revenue equals
a.
average cost.
b.
total cost.
c.
marginal cost.
d.
average cost.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Marginal Analysis and Maximization of Total Profit
118. In the short run, which are most important in determining changes in output?
a.
marginal costs and revenue
b.
total costs and revenue
c.
average costs and revenue
d.
fixed costs
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Marginal Analysis and Maximization of Total Profit
119. If MC > MR,
a.
output should be reduced.
b.
marginal profit is positive.
c.
there are losses.
d.
output should be increased.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Marginal Analysis and Maximization of Total Profit
120. Marginal profit is the addition to a firm’s total profit from a
a.
$1 change in its price.
b.
one-unit change in its output.
c.
reduction in total cost.
d.
reduction in marginal cost.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Marginal Analysis and Maximization of Total Profit
121. 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.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Marginal Analysis and Maximization of Total Profit
Figure 8-5
122. In Figure 8-5, profits are maximized at output of
a.
10.
b.
35.
c.
50.
d.
60.
DISC: Reading and interpreting g – DISC: Reading and interpreting graphs
United States – BPROG: Analytic
Reading and interpreting graphs
Marginal Analysis and Maximization of Total Profit
123. 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.
DISC: Reading and interpreting g – DISC: Reading and interpreting graphs
United States – BPROG: Analytic
Reading and interpreting graphs
Marginal Analysis and Maximization of Total Profit
124. 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.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Marginal Analysis and Maximization of Total Profit
125. 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.
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Marginal Analysis and Maximization of Total Profit
126. 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.
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
127. The typical total profit graphical presentation is shown as
a.
a square.
b.
a rectangle.
c.
a hill, or mound.
d.
an S curve.
c
Easy
DISC: Reading and interpreting g – DISC: Reading and interpreting graphs
United States – BPROG: Analytic
Reading and interpreting graphs
Marginal Analysis and Maximization of Total Profit
128. 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.
Difficult
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Marginal costs & benefits
Marginal Analysis and Maximization of Total Profit
129. 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
Difficult
130. 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.
Moderate
131. Total profit is maximized if the slope of the total profit curve is
a.
positive.
b.
negative.
c.
increasing.
d.
zero.
Easy
132. 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