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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.
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.
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.
78. The goal of the business firm is maximization of ____, and the goal of the consumer is maximization of ____.
a.
total sales; income
b.
total profit; utility
c.
total output; utility
d.
total sales; utility
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
89. For any firm, price always equals
a.
average revenue.
b.
marginal revenue.
c.
marginal cost.
d.
marginal profit.
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.
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.
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.
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.
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.
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
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.
97. Average revenue is equal to
a.
TR/Q.
b.
(P × Q)/P.
c.
TR × Q
d.
All of the above are correct.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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)
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
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
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.
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.
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.
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.
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.
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.
117. Profit can be maximized only where marginal revenue equals
a.
average cost.
b.
total cost.
c.
marginal cost.
d.
average cost.
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
119. If MC > MR,
a.
output should be reduced.
b.
marginal profit is positive.
c.
there are losses.
d.
output should be increased.
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.
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.
Figure 8-5
122. In Figure 8-5, profits are maximized at output of
a.
10.
b.
35.
c.
50.
d.
60.
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.
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.
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.
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.
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.
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.
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
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.
131. Total profit is maximized if the slope of the total profit curve is
a.
positive.
b.
negative.
c.
increasing.
d.
zero.
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
