Question 1

The return to owners for innovation and risk taking is a firm's

Accepted Answer

A)  economic profit after taxes
B)  total revenue
C)  total opportunity cost
D)  total implicit cost
E)  money profit after taxes

Question 2

Economic profit is another name for accounting profit.

Accepted Answer

A) True 
 B)False

Question 3

If a firm faces a downward-sloping demand curve,its marginal revenue is

Accepted Answer

A)  less than its marginal cost
B)  greater than price
C)  less than price
D)  equal to price
E)  equal to its total revenue

Question 4

The demand curve facing a firm shows the

Accepted Answer

A)  maximum price the firm can charge and still sell any given amount of output
B)  minimum price the firm can charge and still sell any given amount of output
C)  minimum price at which the firm will demand any given quantity of output
D)  maximum price at which the firm will demand any given quantity of output
E)  minimum quantity of output the firm can sell at any given price

Question 5

When there are implicit costs of production,

Accepted Answer

A)  accounting and economic profit are equal
B)  opportunity costs of production are zero
C)  explicit costs of production are small
D)  accounting profit will exceed economic profit
E)  economic profit will exceed accounting profit

Question 6

-In Figure 8-8,the marginal revenue from adding the fifth unit of output is

Accepted Answer

A)  $300
B)  $40
C)  $60
D)  $20
E)  $10

Question 7

-Figure 8-11 indicates the prices at which Lorine's Hair Salon is able to sell various quantities of manicures.If the marginal cost of a manicure is constant at $12.50,then the hair salon's profit on manicures is maximized at

Accepted Answer

A)  2 manicures per day
B)  3 manicures per day
C)  4 manicures per day
D)  5 manicures per day
E)  6 manicures per day

Question 8

-In Figure 8-5,which of the following is true at point B?

Accepted Answer

A)  total revenue is smaller than total cost
B)  marginal revenue exceeds marginal cost
C)  marginal revenue equals marginal cost
D)  marginal revenue is smaller than marginal cost
E)  total revenue equals total cost

Question 9

-Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.If Jonathan sells 10 riding mowers per day,he will earn an economic profit of

Accepted Answer

A)  $0
B)  $150
C)  $350
D)  $500
E)  $550

Question 10

In order to maximize profits,a firm should decrease output whenever total cost exceeds total revenue.

Accepted Answer

A) True 
 B)False

Question 11

A firm's total revenue

Accepted Answer

A)  is the profit it earns by producing and selling a particular quantity of output
B)  varies as output varies along the demand curve the firm faces
C)  is constant at all points along a fixed demand curve
D)  is determined by subtracting total profit from total cost
E)  always decreases as its output increases,because costs rise

Question 12

If a firm faces a horizontal demand curve,marginal revenue

Accepted Answer

A)  is constant regardless of how much output the firm produces
B)  decreases as the firm produces more output
C)  increases as the firm produces more output
D)  decreases if the firm produces less output
E)  is less than price at most possible output levels

Question 13

Which of the following rules is most consistent with profit maximization?

Accepted Answer

A)  expand output when MR 
B)  reduce output when MR > MC
C)  expand output when TR > TC
D)  reduce output when TR > TC
E)  expand output when MR > MC

Question 14

Leugers Custom Cabinetmakers is currently operating at a profit while producing four custom cabinets per week.At that output level,marginal cost exceeds marginal revenue.In order to maximize profit,Leugers should

Accepted Answer

A)  decrease output
B)  increase output
C)  leave output at four cabinets per week
D)  either increase or decrease output,depending on its level of fixed costs
E)  either increase or decrease output,depending on its level of variable costs

Question 15

-Consider the marginal revenue and marginal cost curves shown in Figure 8-12.Assume that the firm represented is able to cover its variable costs if it operates in the short run.What is the firm's optimal output level?

Accepted Answer

A)  150 units
B)  80 units
C)  50 units
D)  less than 50 units
E)  between 50 and 80 units

Question 16

William quits his job where he earns an annual salary of $75,000 and opens a management consulting business,charging an hourly rate of $120.He works out of his home,converting a storeroom into an office.(Zoning restrictions prevent William from renting out the room. ) Start-up costs are financed by selling $15,000 worth of bonds he inherited that were earning annual interest payments of $900.During his first year,William incurs expenses for supplies and utilities that total $3,500.The total cost of production in the first year equals

Accepted Answer

A)  $94,400
B)  $79,400
C)  $4,400
D)  $3,500
E)  $19,400

Question 17

If total revenue falls as more output is produced,

Accepted Answer

A)  marginal revenue is negative
B)  marginal revenue is positive
C)  marginal cost is negative
D)  average revenue is negative
E)  total costs exceed total revenue

Question 18

-Consider the firm in Figure 8-10.The marginal revenue from selling the fifth unit of output is

Accepted Answer

A)  $90
B)  $70
C)  $50
D)  $30
E)  $10

Question 19

If a firm is experiencing an economic loss in the long run,then

Accepted Answer

A)  it must be experiencing an accounting loss
B)  it should stay in business if it can cover its fixed costs
C)  the market must be too large
D)  it should exit from the industry
E)  price exceeds marginal cost

Question 20

A firm is currently selling its output for $30 per unit.If the firm reduces the price to $29 in order to boost sales,marginal revenue will

Accepted Answer

A)  equal $30
B)  equal $29
C)  be between $30 and $29
D)  be less than $29
E)  exceed $30

Exam 8: How Firms Make Decisions: Profit Maximization

Correct Answer
verified

-Figure 8-11 indicates the prices at which Lorine's Hair Salon is able to sell various quantities of manicures.If the marginal cost of a manicure is constant at $12.50,then the hair salon's profit on manicures is maximized at

Correct Answer
verified

A firm's total revenue

Correct Answer
verified

If a firm faces a downward-sloping demand curve,its marginal revenue is

Correct Answer
verified

-Consider the marginal revenue and marginal cost curves shown in Figure 8-12.Assume that the firm represented is able to cover its variable costs if it operates in the short run.What is the firm's optimal output level?

Correct Answer
verified

The demand curve facing a firm shows the

Correct Answer
verified

Which of the following rules is most consistent with profit maximization?

Correct Answer
verified

Leugers Custom Cabinetmakers is currently operating at a profit while producing four custom cabinets per week.At that output level,marginal cost exceeds marginal revenue.In order to maximize profit,Leugers should

Correct Answer
verified

Economic profit is another name for accounting profit.

Correct Answer
verified

-In Figure 8-5,which of the following is true at point B?

Correct Answer
verified

-Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.If Jonathan sells 10 riding mowers per day,he will earn an economic profit of

Correct Answer
verified

If a firm is experiencing an economic loss in the long run,then

Correct Answer
verified

-In Figure 8-8,the marginal revenue from adding the fifth unit of output is

Correct Answer
verified

-Consider the firm in Figure 8-10.The marginal revenue from selling the fifth unit of output is

Correct Answer
verified

A firm is currently selling its output for $30 per unit.If the firm reduces the price to $29 in order to boost sales,marginal revenue will

Correct Answer
verified

If a firm faces a horizontal demand curve,marginal revenue

Correct Answer
verified

In order to maximize profits,a firm should decrease output whenever total cost exceeds total revenue.

Correct Answer
verified

When there are implicit costs of production,

Correct Answer
verified

The return to owners for innovation and risk taking is a firm's

Correct Answer
verified

If total revenue falls as more output is produced,

Correct Answer
verified

Exam 8: How Firms Make Decisions: Profit Maximization

Correct AnswerverifiedShow Answer

-Figure 8-11 indicates the prices at which Lorine's Hair Salon is able to sell various quantities of manicures.If the marginal cost of a manicure is constant at $12.50,then the hair salon's profit on manicures is maximized at

Correct AnswerverifiedShow Answer

A firm's total revenue

Correct AnswerverifiedShow Answer

If a firm faces a downward-sloping demand curve,its marginal revenue is

Correct AnswerverifiedShow Answer

-Consider the marginal revenue and marginal cost curves shown in Figure 8-12.Assume that the firm represented is able to cover its variable costs if it operates in the short run.What is the firm's optimal output level?

Correct AnswerverifiedShow Answer

The demand curve facing a firm shows the

Correct AnswerverifiedShow Answer

Which of the following rules is most consistent with profit maximization?

Correct AnswerverifiedShow Answer

Leugers Custom Cabinetmakers is currently operating at a profit while producing four custom cabinets per week.At that output level,marginal cost exceeds marginal revenue.In order to maximize profit,Leugers should

Correct AnswerverifiedShow Answer

Economic profit is another name for accounting profit.

Correct AnswerverifiedShow Answer

-In Figure 8-5,which of the following is true at point B?

Correct AnswerverifiedShow Answer

-Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.If Jonathan sells 10 riding mowers per day,he will earn an economic profit of

Correct AnswerverifiedShow Answer

If a firm is experiencing an economic loss in the long run,then

Correct AnswerverifiedShow Answer

-In Figure 8-8,the marginal revenue from adding the fifth unit of output is

Correct AnswerverifiedShow Answer

-Consider the firm in Figure 8-10.The marginal revenue from selling the fifth unit of output is

Correct AnswerverifiedShow Answer

A firm is currently selling its output for $30 per unit.If the firm reduces the price to $29 in order to boost sales,marginal revenue will

Correct AnswerverifiedShow Answer

If a firm faces a horizontal demand curve,marginal revenue

Correct AnswerverifiedShow Answer

In order to maximize profits,a firm should decrease output whenever total cost exceeds total revenue.

Correct AnswerverifiedShow Answer

When there are implicit costs of production,

Correct AnswerverifiedShow Answer

The return to owners for innovation and risk taking is a firm's

Correct AnswerverifiedShow Answer

If total revenue falls as more output is produced,

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified