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Exam 8: Output Price and Profit the Importance of Marginal Analysis

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Question 71

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The average revenue curve can also be described as the demand curve.

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B) False

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Question 72

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Do firms really seek to maximize profits?

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Profit maximization is difficult because...

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Question 73

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Net benefit is equal to total benefit minus marginal cost.

Figure 8-3 -Figure 8-3 shows a firm's total profit function.At an output of 40, the firm's total profit equals ____.

Firms need to know the shape of a demand curve to use marginal analysis.

The demand curve facing Company ABC is perfectly elastic.What is its marginal revenue?

Profit maximization occurs when MC = MR.

A firm that decides to make a price cut assumes that marginal profit is negative.

In arriving at the quantity of output and price of its product, a company

Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).

Figure 8-2 -Figure 8-2 shows a manufacturer's total profit curve.To maximize her total profit, the manufacturer should produce ____ units of output.

To find its profit-maximizing output level, a firm should operate where

Marginal profit is the profit

Why assume that firms maximize profit, when it is easy to find companies that pursue other goals such as saving rain forests (Ben and Jerry's) and sponsoring Mister Rogers (Sears)?

Economists assume that business firms have many goals, and profit maximization is just one of them.

Michael Jordan averaged 35 points per game over a 100-game season.During the playoff round of 10 games, he averaged 50 points, and in the five-game championship series, he led the Chicago Bulls to victory, averaging 40 points.For the entire season, how many points did Jordan score, what was his average, and did the championship series pull his previous average up or down?

Profits will be maximized when the slope of the total revenue curve and the slope of the total cost curve equal zero.

According to the text, when management selects a price or quantity, it also selects the other.Explain why this is true.

A firm has $200,000 to spend on either direct sales or advertising.Suppose further that if the $200,000 is spent on direct sales, it will bring in an accounting profit of $40,000.Instead, the (accounting) profit it could obtain from a $200,000 investment in advertising is $X.Compare the profitability of the two options if (a) X = 50,000, (b) X = 30,000, or (c) X = 40,000.

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