Maximizing Profit: Sample Quiz

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1. A firm is producing the output at which its profit is maximized. If it produces more output,

additional costs will exceed additional revenues.
 additional revenues will exceed additional costs.
 its costs will be reduced more than its revenues.
 its additional revenue will be less than zero.
 more than one of the above.

2. Your friend has started a small business selling xymzhs. He sells his product for $5.00 and the average cost of producing it is $4.90. He is unsure whether he is producing the right quantity of his product, and upon hearing that you are taking economics, he asks your advice. What should you tell him?

Produce more so that average cost equals price.
 Produce more in order to reduce per unit fixed costs.
 Produce less in order to lower variable costs.
 Try to find the output at which the difference between average cost and price is maximized.
 The information he has given you is useless in trying to answer this question.

3. A firm has constant marginal costs of $30. Its price elasticity of demand is also constant, at 4. Its profit-maximizing price is:

$30. $34. $40. $120.

4. Marginal revenue product is:

marginal product divided by marginal revenue.
 marginal product multiplied by marginal revenue.
 marginal revenue divided by marginal product.
 none of the above.

Answer the next five questions based on the following table:

Amount of Energy
Output
Total Cost
Total Revenue
99
148
$1000
$1054
100
150
$1002
$1057

5. The marginal product of energy is:

.5 1 1.5 2 3

6. The marginal resource cost of energy is:

$.50. $1.00. $1.50. $2.00. $3.00.

7. The marginal revenue of output is:

$.50. $1.00. $1.50. $2.00. $3.00.

8. The marginal revenue product of energy is:

$.50. $1.00. $1.50. $2.00. $3.00.

9. The marginal cost of output is:

$.50. $1.00. $1.50. $2.00. $3.00.

10. "Buying an extra acre of land increases the revenue of Parse Farms by $2100 per year." This information is an example of the concept of marginal:

cost.
 resource cost.
 revenue.
 revenue product.
 product.

11. "Hiring another cook increases the costs of Dinah's Diner by $400 per week." This information is an example of the concept of marginal:

cost.
 resource cost.
 revenue.
 revenue product.
 product.

12. "Producing another bagel increases the sales of Gabe's Bagels by 30¢." This information is an example of the concept of marginal:

cost.
 resource cost.
 revenue.
 revenue product.
 product.

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Copyright Robert Schenk