question

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

MC = MR.

AVC = MC.

AFC = AVC.

TFC = TVC.

MC = MR.

AVC = MC.

AFC = AVC.

TFC = TVC.

answer

MC = MR.

question

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

slope of the total revenue curve is greatest.

horizontal distance between the two curves is greatest.

vertical distance between the two curves is greatest.

total cost curve cuts the total revenue curve.

slope of the total revenue curve is greatest.

horizontal distance between the two curves is greatest.

vertical distance between the two curves is greatest.

total cost curve cuts the total revenue curve.

answer

vertical distance between the two curves is greatest.

question

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

generally leaves both quantity and price decisions to consumers.

has no control over either quantity or price.

makes two decisions by setting both optimal output and optimal price.

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

generally leaves both quantity and price decisions to consumers.

has no control over either quantity or price.

makes two decisions by setting both optimal output and optimal price.

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

answer

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

question

Marginal revenue is defined as

the change in average revenue from a one-unit change in output.

the change in total revenue from a one-unit change in output.

the change in total revenue from a unit change in price.

the change total cost from a one-unit change in output.

the change in average revenue from a one-unit change in output.

the change in total revenue from a one-unit change in output.

the change in total revenue from a unit change in price.

the change total cost from a one-unit change in output.

answer

the change in total revenue from a one-unit change in output.

question

A profit-maximizing firm always

produces every unit of output for which MR > MC.

hires labor until the MRP of labor = 0.

sells its output at P = MR.

produces at the output at which MR = 0.

produces every unit of output for which MR > MC.

hires labor until the MRP of labor = 0.

sells its output at P = MR.

produces at the output at which MR = 0.

answer

produces every unit of output for which MR > MC.

question

When a firm's fixed cost increases,

variable cost increases.

it would not need to change output.

the firm needs to adjust its price and quantity to restore the profit maximum.

marginal cost increases.

variable cost increases.

it would not need to change output.

the firm needs to adjust its price and quantity to restore the profit maximum.

marginal cost increases.

answer

it would not need to change output.

question

If a company plots its total profit curve, it would show

that slope is a constant at a value of one.

that the curve has a negative slope over the entire range of output.

that the slope of the curve is negative, then zero and then becomes positive as output increases.

that the slope of the curve is positive, then zero and then becomes negative as output increases.

that slope is a constant at a value of one.

that the curve has a negative slope over the entire range of output.

that the slope of the curve is negative, then zero and then becomes positive as output increases.

that the slope of the curve is positive, then zero and then becomes negative as output increases.

answer

that the slope of the curve is positive, then zero and then becomes negative as output increases.

question

Total profit = Total revenue − Total cost (including opportunity cost).

Total profit defined in this way is called

absolute profit.

relative profit.

accounting profit.

economic profit.

Total profit defined in this way is called

absolute profit.

relative profit.

accounting profit.

economic profit.

answer

economic profit.

question

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11 and a marginal cost of $10. It follows that the

production of the 101st unit of output must increase the firm's profit by more than $1.

production of the 100th unit of output increases the firm's profit by $1.

firm's profit-maximizing level of output is less than 100 units.

production of the 100th unit of output increases the firm's average cost by $1.

production of the 101st unit of output must increase the firm's profit by more than $1.

production of the 100th unit of output increases the firm's profit by $1.

firm's profit-maximizing level of output is less than 100 units.

production of the 100th unit of output increases the firm's average cost by $1.

answer

production of the 100th unit of output increases the firm's profit by $1.

question

An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

additional passengers add little to fixed costs.

such passengers add more to profits than do those with reserved seats.

the marginal cost of additional passengers is very small.

additional passengers are needed to balance the load.

additional passengers add little to fixed costs.

such passengers add more to profits than do those with reserved seats.

the marginal cost of additional passengers is very small.

additional passengers are needed to balance the load.

answer

the marginal cost of additional passengers is very small.

question

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

total revenue is equal to fixed cost.

profit is maximized.

total revenue is equal to total cost.

total revenue is equal to variable cost.

total revenue is equal to fixed cost.

profit is maximized.

total revenue is equal to total cost.

total revenue is equal to variable cost.

answer

profit is maximized.

question

The optimal number of units to produce is best expressed when

marginal benefit exceeds marginal cost.

marginal cost exceeds marginal benefit.

marginal benefit and marginal cost are equal to zero.

marginal benefit and marginal cost are close to equal.

marginal benefit exceeds marginal cost.

marginal cost exceeds marginal benefit.

marginal benefit and marginal cost are equal to zero.

marginal benefit and marginal cost are close to equal.

answer

marginal benefit and marginal cost are close to equal.

question

If a firm finds itself at an output level where MR < MC, then the firm

should increase output.

should raise the price of its product.

should decrease output.

should shut down, since it is losing money.

should increase output.

should raise the price of its product.

should decrease output.

should shut down, since it is losing money.

answer

should decrease output.

question

A firm can use its demand curve to calculate

economic profit.

production costs.

total revenue.

accounting profit.

economic profit.

production costs.

total revenue.

accounting profit.

answer

total revenue.

question

A firm's price is

greater than average revenue.

greater than marginal revenue.

equal to average revenue.

less than marginal cost.

greater than average revenue.

greater than marginal revenue.

equal to average revenue.

less than marginal cost.

answer

equal to average revenue.

question

Marginal profit is the addition to a firm's total profit from a

one-unit change in its output.

reduction in marginal cost.

reduction in total cost.

$1 change in its price.

one-unit change in its output.

reduction in marginal cost.

reduction in total cost.

$1 change in its price.

answer

one-unit change in its output.

question

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

$28,000.

$32,000.

$60,000.

$10,000.

$28,000.

$32,000.

$60,000.

$10,000.

answer

$28,000.

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