Test Questions & Answers Ch12 Managerial Decisions For Firms - Foundations of Business Analysis 13th Edition | Test Bank with Answer Key by Christopher R. Thomas. DOCX document preview.
Chapter 12: MANAGERIAL DECISIONS FOR FIRMS WITH MARKET POWER
Multiple Choice
12-1 Which of the following is a characteristic of a monopoly market?
a. one firm is the only supplier of a product for which there are no close substitutes
b. entry into the market is blocked
c. the firm can influence market price
d. all of the above
Difficulty: 01 Easy
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-01
12-2 In a monopoly market,
a. other firms have no incentive to enter the market.
b. profits will always be positive because the firm is the only supplier in the market.
c. the demand facing the firm is downward-sloping because it is the market demand.
d. a and b
e. none of the above
Difficulty: 01 Easy
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-01
12-3 A monopolist
a. can raise its price without losing any sales because it is the only supplier in the market.
b. can earn a greater than normal rate of return in the long run.
c. always charges a price that is higher than marginal revenue.
d. both a and b
e. both b and c
Difficulty: 02 Medium
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-01
12-4 A firm with market power
a. can increase price without losing all sales.
b. faces a downward-sloping demand curve.
c. is the only seller in a market.
d. both a and b
e. all of the above
Difficulty: 02 Medium
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-01
12-5 One method of measuring the extent of a firm's market power is
a. the Lerner index.
b. price elasticity of demand for the firm's product.
c. income elasticity of demand for the firm's product.
d. both a and b
e. all of the above
Difficulty: 01 Easy
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-01
12-6 In a monopolistically competitive market,
a. firms are small relative to the total market.
b. no firm has any market power.
c. there is easy entry and exit in the market.
d. a and b
e. a and c
Difficulty: 01 Easy
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-01
12-7 Which of the following would indicate a relatively large amount of market power?
a. Highly price elasticity demand
b. Low cross-price elasticity with other products
c. Low Lerner index
d. all of the above
e. none of the above
Difficulty: 01 Easy
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-01
12-8 A monopolistic competitor is similar to a monopolist in that
a. both have market power.
b. both earn positive economic profit in the long run.
c. both produce the output at which long-run average cost is at a minimum.
d. a and b
e. all of the above
Difficulty: 01 Easy
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-01
12-9 Refer to the following table showing a monopolist’s demand schedule:
Price | Quantity |
$50 | 300 |
40 | 600 |
20 | 800 |
10 | 1,000 |
What is marginal revenue for a price decrease from $50 to $40?
a. $9,000
b. $24,000
c. $30
d. $20
e. $40
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-10 Refer to the following table showing a monopolist’s demand schedule:
Price | Quantity |
$50 | 300 |
40 | 600 |
20 | 800 |
10 | 1,000 |
If price falls from $20 to $10, then
a. MR = −$10, and demand is inelastic.
b. MR = $10, and demand is elastic.
c. MR = $30, and demand is elastic.
d. MR = −$30, and demand is inelastic.
e. none of the above
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-11 Refer to the following figure showing demand and marginal revenue for a monopoly.
At any price above $______ demand is elastic.
a. $5
b. $10
c. $15
d. $20
e. zero
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-12 Refer to the following figure showing demand and marginal revenue for a monopoly.
If production costs are constant and equal to $10 (i.e., LAC = LMC = $10), what price will the monopoly charge?
a. $5
b. $10
c. $15
d. $20
e. $25
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-13 In a monopolistically competitive market,
a. a firm has market power because it produces a differentiated product.
b. a firm earns economic profits in the long run because it has market power.
c. there are a large number of firms.
d. both a and b
e. both a and c
Difficulty: 01 Easy
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-01
12-14 Monopolistic competition is similar to perfect competition in that
a. there are a large number of firms.
b. firms earn economic profits in the long run.
c. firms face downward-sloping demand curves.
d. both a and b
- all of the above
Difficulty: 01 Easy
Topic: Measurement of Market Power
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-01
12-15 A monopoly is producing a level of output at which price is $80, marginal revenue is $40, average total cost is $100, marginal cost is $40, and average fixed cost is $10. In order to maximize profit, the firm should
a. produce more.
b. keep output the same.
c. produce less.
d. shut down.
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-16 The following figure shows the demand and cost curves facing a firm with market power in the short run.
The profit-maximizing level of output is
a. 60 units.
b. 70 units
c. 80 units
d. 90 units.
e. 100 units.
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-17 The following figure shows the demand and cost curves facing a firm with market power in the short run.
The firm will sell its output at a price of
a. $2.
b. $3.
c. $3.75.
d. $5.
e. $6.
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-18 The following figure shows the demand and cost curves facing a firm with market power in the short run.
The firm earns profits of
a. $ 75.
b. $120.
c. $150.
d. $180.
- $300.
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-19
The above graph shows the demand and cost conditions facing a price-setting firm. When output is 50 units, what will happen to total revenue if the firm sells another unit of output?
a. Total revenue will increase $13.50.
b. Total revenue will increase $11.00.
c. Total revenue will increase $9.00.
d. Total revenue will increase $6.00.
e. none of the above
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-20
The above graph shows the demand and cost conditions facing a price-setting firm.
The firm will produce _____ units of output and charge a price of _____.
a. 40, $8
b. 50, $9
c. 60, $10
d. 50, $6
e. none of the above
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-21
The above graph shows the demand and cost conditions facing a price-setting firm.
What is the maximum amount of profit the firm can earn?
a −$180
b. −$80
c. $60
d. $120
e. none of the above
Difficulty: 03 Hard
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-22 A monopolist will maximize profit by producing the level of output at which
a. the firm's total revenue exceeds total cost by the largest amount.
b. marginal revenue equals marginal cost.
c. the last unit of output produced adds the same amount to total revenue as to total cost.
d. both a and b
e. all of the above
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-23 A profit-maximizing firm with market power will always produce a level of output where
a. demand is elastic.
b. demand is inelastic.
c. price is greater than average total cost.
d. marginal revenue is greater than average total cost.
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-24 A firm with market power is producing a level of output at which price is $8, marginal revenue is $5, average variable cost is $6, and marginal cost is $10. In order to maximize profit, the firm should
a. decrease price.
b. increase price.
c. keep price the same.
d. increase output.
e. shut down.
Difficulty: 03 Hard
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-25 A monopolist which suffers losses in the short run will
a. continue to operate as long as total revenue covers fixed cost.
b. raise price in order to eliminate losses.
c. exit in the long run if there is no plant size that will result in economic profit that is greater than or equal to zero.
d. both a and b
e. both a and c
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-26 Suppose that a profit-maximizing monopolist has a plant of optimal size and is producing a level of output at which price is $30, average total cost is $55, and average fixed cost is $40. The firm should
a. operate in the short run.
b. shut down in the short run.
c. exit the market in the long run.
d. continue to operate in the long run.
e. both a and c
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-27 Columns 1 and 2 make up a portion of a monopolist's production function for a single variable input, labor. Columns 2 and 3 represent the demand function facing the monopolist over this range of output:
(1) | (2) | (3) |
Units of Labor | Units of Output | Price |
3 | 370 | $10 |
4 | 490 | 9 |
5 | 570 | 8 |
6 | 600 | 7 |
7 | 620 | 6 |
How much does the fifth unit of labor add to the firm's total revenue?
a. $1.875
b. $80
c. $150
d. $4,560
e. none of the above
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-04
12-28 Columns 1 and 2 make up a portion of a monopolist's production function for a single variable input, labor. Columns 2 and 3 represent the demand function facing the monopolist over this range of output:
(1) | (2) | (3) |
Units of Labor | Units of Output | Price |
3 | 370 | $10 |
4 | 490 | 9 |
5 | 570 | 8 |
6 | 600 | 7 |
7 | 620 | 6 |
If the monopolist faces a fixed wage rate of $300, how many units of labor will the firm employ?
a. 3 units
b. 4 units
c. 5 units
d. 6 units
e. 7 units
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-04
12-29 Columns 1 and 2 make up a portion of a monopolist's production function for a single variable input, labor. Columns 2 and 3 represent the demand function facing the monopolist over this range of output:
(1) | (2) | (3) |
Units of Labor | Units of Output | Price |
3 | 370 | $10 |
4 | 490 | 9 |
5 | 570 | 8 |
6 | 600 | 7 |
7 | 620 | 6 |
If an increase in consumers' income increases product price by $2 at each level of output, how many units of labor will the firm employ at a wage rate of $300?
a. 3
b. 4
c. 5
d. 6
e. 7
Difficulty: 03 Hard
Topic: Profit-Maximizing Input Usage
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-04
12-30 Which of the following is true of a monopolist in the long run?
a. The firm will charge a price that is higher than long-run marginal cost.
b. The firm will charge a price that is equal to or greater than long-run average cost.
c. The firm will produce that level of output at which long-run average cost is minimum.
d. both a and b
e. both b and c
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-31 A firm with market power will maximize profit by hiring the amount of an input at which the
a. last unit of the input hired adds the same amount to total revenue as to total cost.
b. additional revenue from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.
c. last unit of the input hired adds the same amount to total output as to total cost.
d. additional output from the last unit of the input hired exceeds the additional cost of the last unit by the largest amount.
Difficulty: 01 Easy
Topic: Profit-Maximizing Input Usage
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-04
12-32 A monopolist is currently hiring 5,000 units of labor. At this level, the marginal revenue of output is $10, the (fixed) wage rate is $300, and the marginal product of labor is 50. In order to maximize profit, the firm should
a. keep the level of employment the same because the firm is earning a profit of $100,000.
b. hire more labor because the next unit of labor increases profit by $500.
c. hire more labor because the next unit of labor increases profit by $200.
d. hire less labor because the last unit of labor added more to total cost ($300) than to total revenue ($10).
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-04
12-33 A firm facing a downward sloping demand curve is producing a level of output at which price is $7, marginal revenue is $5, and average total cost, which is at its minimum value, is $3. In order to maximize profit, the firm should
a. decrease price.
b. keep price the same.
c. decrease output.
d. increase price.
e. both c and d
Difficulty: 03 Hard
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-34 A monopolist is producing a level of output at which price is $65, marginal revenue is $35, average total cost is $35, and marginal cost is $50. In order to maximize profit, the firm should
a. keep output the same.
b. produce less.
c. produce more.
d. decrease price.
e. both c and d
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-35 Refer to the following table which gives the demand and cost data for a price-setting firm:
Price | Output | Total Cost |
$ 20 | 7 | $36 |
19 | 8 | 45 |
18 | 9 | 54 |
17 | 10 | 63 |
16 | 11 | 72 |
15 | 12 | 81 |
What is the profit-maximizing price?
a. $19
b. $18
c. $17
d. $16
e. $15
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-36 Refer to the following table which gives the demand and cost data for a price-setting firm:
Price | Output | Total Cost |
$ 20 | 7 | $36 |
19 | 8 | 45 |
18 | 9 | 54 |
17 | 10 | 63 |
16 | 11 | 72 |
15 | 12 | 81 |
What is the maximum amount of profit that this firm can earn?
a. $104
b. $105
c. $106
d. $107
e. $108
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-37
The figure above shows the demand and cost curves facing a price-setting firm. What is marginal revenue when output is 100 units?
a. $10
b. $20
c. $25
d. $30
e. $35
Difficulty: 01 Easy
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-38
The figure above shows the demand and cost curves facing a price-setting firm. At what output is marginal revenue $20?
a. 100 units
b. 200 units
c. 300 units
d. 400 units
e. 500 units
Difficulty: 01 Easy
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-39
The figure above shows the demand and cost curves facing a price-setting firm. The profit-maximizing (or loss-minimizing) level of output is
a. 100
b. 200
c. 300
d. 400
e. 450
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-40
The figure above shows the demand and cost curves facing a price-setting firm. In profit-maximizing (or loss-minimizing) equilibrium, the price-setting firm earns $______ in total revenue, which is ___________ the maximum possible total revenue of $________.
a. $7,500; equal to; $7,500
b. $8,000; more than; $7,500
c. $7,650; less than; $8,000
d. $8,000; equal to; $8,000
e. $7,500; less than; $8,000
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-41
The figure above shows the demand and cost curves facing a price-setting firm. The maximum profit the firm can earn is $________.
a. −$4,500
b. −$1,500
c. $7,500
d. $7,650
e. $8,000
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-42
The figure above shows the demand and cost curves facing a price-setting firm. In profit-maximizing (or loss-minimizing) equilibrium, the Lerner index is _____, and the elasticity of demand is ______.
a. 1 ; −1
b. 0.6; −1.667
c. 0.5; −2.0
d. 0.667; −1.5
e. 1.33; −0.75
Difficulty: 03 Hard
Topic: Measurement of Market Power
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-01
12-43
The graph above shows the demand and cost conditions facing a monopolist. What price will the monopolist set?
a. $20
b. $30
c. $40
d. $50
e. $60
Difficulty: 02 Medium
Topic: Measurement of Market Power
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-01
12-44
The graph above shows the demand and cost conditions facing a monopolist. What is the maximum profit the monopolist can earn?
a. $10
b. $30
c. $800
d. $1,800
e. $2,400
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-45 A monopolist will
a. always charge a price higher than average cost.
b. always charge a price higher than marginal cost.
c. always produce a level of output at which marginal revenue equals marginal cost.
d. both b and c
e. all of the above
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-46 If a monopolist is producing a level of output at which demand is inelastic, then
a. the firm is not maximizing profit.
b. marginal revenue is positive.
c. total revenue will decrease if the firm produces more output.
d. both a and b
e. both a and c
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-47 Refer to the following table that gives the demand facing a monopolist:
Price | Quantity |
$20 | 20 |
15 | 40 |
10 | 65 |
5 | 70 |
How much does the 28th unit of output add to total revenue?
a. $2
b. $10
c. $20
d. $200
e. none of the above
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-48 Refer to the following table that gives the demand facing a monopolist:
Price | Quantity |
$20 | 20 |
15 | 40 |
10 | 65 |
5 | 70 |
If a firm earns profits of $250 by producing 40 units of output, the firm charges a price of _____ and has total costs of ______.
a. $15, $250
b. $15, $350
c. $20, $150
d. $600, $450
e. none of the above
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-49 Refer to the following table that gives the demand facing a monopolist:
Price | Quantity |
$20 | 20 |
15 | 40 |
10 | 65 |
5 | 70 |
Demand is __________ between 65 and 70 units of output because marginal revenue in that range is ______.
a. elastic, $50
b. elastic, $100
c. inelastic, negative
d. inelastic, positive
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-03
12-50 A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a single variable input, labor, which costs $600 per worker each week.
Given the above, the 14th worker hired adds $_______ to the firm's total revenue each week.
a. $200 per week
b. $400 per week
c. $500 per week
d. $700 per week
e. $900 per week
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-04
12-51 A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a single variable input, labor, which costs $600 per worker each week.
Given the above, in order to maximize profit, the manager should hire ________ workers per week.
a. 9
b. 10
c. 12
d. 18
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-04
12-52 A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a single variable input, labor, which costs $600 per worker each week.
Given the above, in profit-maximizing (or loss-minimizing) equilibrium, the firm's total variable costs are
a. $12,000.
b. $6,000.
c. $600.
d. $400.
e. none of the above
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-04
12-53 A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a single variable input, labor, which costs $600 per worker each week.
Given the above, the maximum profit the firm can earn is _____________.
a. $4,800 per week.
b. $3,000 per week.
c. $2,400 per week.
d. $1,800 per week.
e. -$1,800 per week.
Difficulty: 02 Medium
Topic: Profit Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-54 A manager of a firm with market power faces the marginal revenue product and average revenue product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a single variable input, labor, which costs $600 per worker each week.
Given the above, suppose the weekly wage rate increases to $1,400 per worker. The firm would hire _______ workers and earn a profit of _______ per week.
a. 6 ; $8,400
b. 6 ; $6,000
c. 6 ; −$2,400
d. 6 ; $4,800
e. 0 ; −$1,800
Difficulty: 02 Medium
Topic: Profit-Maximizing Input Usage
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-04
12-55 All of the following could be a barrier to entry EXCEPT:
a. a government franchise.
b. decreasing long-run average cost.
c. patents.
d. switching costs.
e. rising LMC.
Difficulty: 02 Medium
Topic: Barriers to Entry
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-02
12-56 A monopolistically competitive industry is in the process of moving toward long-run equilibrium. This period the product of a typical firm has more substitutes than last period. This means that
a. there was entry into the industry.
b. a typical firm will produce more this period.
c. a typical firm's profits will fall this period.
d. both a and c
e. all of the above
Difficulty: 02 Medium
Topic: Monopolistic Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-05
12-57 If a monopolistically competitive market is in long-run equilibrium, each firm
a. charges a price which is higher than long-run marginal cost.
b. earns economic profits.
c. produces that level of output at which long-run average cost is minimum.
d. all of the above
e. none of the above
Difficulty: 01 Easy
Topic: Monopolistic Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-05
12-58 A monopolistic competitor is producing a level of output at which price is $200, marginal revenue is $100, average total cost is $210, marginal cost is $100, and average variable cost is $180. In order to maximize profit, the firm should
a. increase output.
b. keep output the same.
c. decrease output.
d. shut down.
Difficulty: 02 Medium
Topic: Monopolistic Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-05
12-59 A monopolistic competitor is currently producing 2,000 units of output; price is $100, marginal revenue is $80, average total cost is $130, marginal cost is $60, and average variable cost is $60. The firm should
a. raise price because the firm is losing money.
b. keep the price the same because the firm is producing at minimum average variable cost.
c. raise price because the last unit of output decreased profit by $30.
d. lower price because the next unit of output increases profit by $20.
Difficulty: 02 Medium
Topic: Monopolistic Competition
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-05
12-60 In a monopolistically competitive industry in long-run equilibrium
a. each firm is making a normal profit.
b. each firm is producing the output at which long-run average cost is at its minimum point.
c. price equals marginal cost for each firm.
d. all of the above
e. none of the above
Difficulty: 01 Easy
Topic: Monopolistic Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-05
12-61 If firms in a monopolistically competitive industry are making an economic profit,
a. new firms will enter the industry.
b. economic profit will fall in future periods.
c. price is higher than marginal cost.
d. all of the above
e. none of the above
Difficulty: 01 Easy
Topic: Monopolistic Competition
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-05
12-62 A firm with market power faces the following estimated demand and average variable cost functions:
where 
is quantity demanded, P is price, M is income, and 
is the price of a related good. The firm expects income to be $40,000 and 
to be $2. Total fixed cost is $100,000. What is the estimated demand function for the firm?
a. 
= 71,000 − 500P
b. 
= 39,000 − 200P
c. 
= 39,000 − 500P
d. 
= 40,000 − 200P
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-63 A firm with market power faces the following estimated demand and average variable cost functions:
where is quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $2. Total fixed cost is $100,000. What is the estimated marginal revenue function for the firm?
a. MR = 48 − 0.002Q
b. MR = 78 − 0.002Q
c. MR = 78 − 0.004Q
d. MR = 48 − 0.004Q
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-64 A firm with market power faces the following estimated demand and average variable cost functions:
where is quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $2. Total fixed cost is $100,000. What is the profit-maximizing choice of output?
a. 8,000 units
b. 10,000 units
c. 12,000 units
d. 16,000 units
e. 0 units, the firm shuts down
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-65 A firm with market power faces the following estimated demand and average variable cost functions:
where is quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $2. Total fixed cost is $100,000. What price should the firm charge in order to maximize profit?
a. $42.50
b. $48
c. $50
d. $62
e. $70
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-66 A firm with market power faces the following estimated demand and average variable cost functions:
where is quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $2. Total fixed cost is $100,000. The firm should ______________ because _______________.
a. shut down, P = $62 < TVC = $229.50
b. operate, P = $62 > AVC = $17.50
c. operate, P = $62 > AVC = $22
d. operate, P = $60.50 > AVC = $25.50
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-67 A firm with market power faces the following estimated demand and average variable cost functions:
where is quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $2. Total fixed cost is $100,000. What is the firm's profit?
a. $147,000
b. $120,000
c. $220,000
d. $335,000
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-68 The market demand for a monopoly firm is estimated to be:
where 
is quantity demanded, P is price, M is income, and 
is the price of a related good. The manager has forecasted the values of M and 
will be $50,000 and $20, respectively, in 2021. For 2021, the forecasted demand function is
a. 
= 300,000 − 500P
b. 
= 100,000 − 100P
c. 
= 600,000 − 100P
d. 
= 200,000 − 500P
e. none of the above
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-69 The market demand for a monopoly firm is estimated to be:
where is quantity demanded, P is price, M is income, and is the price of a related good. The manager has forecasted the values of M and will be $50,000 and $20, respectively, in 2021. For 2021, the inverse demand function is
a. Q = 300 − 0.005P.
b. P = 600 − 0.001Q.
c. P = 300 − 0.002Q.
d. P = 600 − 0.004Q.
e. none of the above
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-70 The market demand for a monopoly firm is estimated to be:
where is quantity demanded, P is price, M is income, and is the price of a related good. The manager has forecasted the values of M and will be $50,000 and $20, respectively, in 2021. For 2021, the marginal revenue function is
a. MR = 290 − 0.5P.
b. MR = 580 − 0.001Q.
c. MR = 290 − 0.002Q.
d. MR = 600 − 0.004Q.
e. none of the above
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-71 The market demand for a monopoly firm is estimated to be:
where is quantity demanded, P is price, M is income, and is the price of a related good. The manager has forecasted the values of M and will be $50,000 and $20, respectively, in 2021. The average variable cost function is estimated to be
Total fixed cost in 2021is expected to be $4 million. The estimated marginal cost function is
a. SMC = 260 − 0.03Q + 0.000015Q2.
b. SMC = 520 − 0.06Q + 0.000003Q2.
c. SMC = 520 − 0.03Q + 0.000002Q2.
d. SMC = 260 − 0.015Q + 0.000005Q2.
e. none of the above
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-72 The market demand for a monopoly firm is estimated to be:
where is quantity demanded, P is price, M is income, and is the price of a related good. The manager has forecasted the values of M and will be $50,000 and $20, respectively, in 2021. The average variable cost function is estimated to be
Total fixed cost in 2021is expected to be $4 million. The profit-maximizing level of output for 2021is
a. 1,000 units.
b. 4,000 units.
c. 5,000 units.
d. 10,000 units.
e. 20,000 units.
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-73 The market demand for a monopoly firm is estimated to be:
where is quantity demanded, P is price, M is income, and is the price of a related good. The manager has forecasted the values of M and will be $50,000 and $20, respectively, in 2021. The average variable cost function is estimated to be
Total fixed cost in 2021is expected to be $4 million. The profit-maximizing price for 2021is
a. $80.
b. $100.
c. $260.
d. $520.
e. $560.
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-74 The market demand for a monopoly firm is estimated to be:
where is quantity demanded, P is price, M is income, and is the price of a related good. The manager has forecasted the values of M and will be $50,000 and $20, respectively, in 2021. The average variable cost function is estimated to be
Total fixed cost in 2021is expected to be $4 million. The manager should ________________ because_____________.
a. shut down; P = $520 < TVC = $320
b. shut down; P = $480 < AVC = $500
c. operate; P = $560 > AVC = $320
d. operate; P = 480 > AVC = $300
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-75 The market demand for a monopoly firm is estimated to be:
where is quantity demanded, P is price, M is income, and is the price of a related good. The manager has forecasted the values of M and will be $50,000 and $20, respectively, in 2021. The average variable cost function is estimated to be
Total fixed cost in 2021is expected to be $4 million. The firm's profit is
a. $100,000.
b. $200,000.
c. $375,000.
d. −$182,000.
e. $800,000.
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-76 If demand is estimated to be 
= 240 − 6P, the inverse demand function is
a. P = 40 − 0.1667Q.
b. P = 240 − Q.
c. 
= 40 − P.
d. 
= 240 − 12P.
e. 
= 240 − 3P.
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-77 If demand is estimated to be 
= 240 − 6P, the marginal revenue function is
a. MR = 40 − 0.33Q.
b. MR = 240 − 2Q.
c. MR = 40 − 2P.
d. MR = 240 − 12P.
e. MR = 240 − 6P.
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-78 Using time-series data, the demand function for a profit-maximizing monopolist has been estimated as
where 
is the amount sold, P is price, M is income, and 
is the price of a related good. The estimated values for M and 
in 2021are $25,000 and $200, respectively. The short-run marginal cost curve for this firm has been estimated as:
Total fixed cost is forecast to be $500,000 in 2021. The forecasted demand function for 2021is:
a. 
= 212,000 − 500P
b. 
= 200,000 − 2,000P
c. 
= 80,000 − 500P
d. 
= 150,000 − 2,000P
e. 
= 110,000 − 500P
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-79 Using time-series data, the demand function for a profit-maximizing monopolist has been estimated as
where is the amount sold, P is price, M is income, and is the price of a related good. The estimated values for M and in 2021are $25,000 and $200, respectively. The short-run marginal cost curve for this firm has been estimated as:
Total fixed cost is forecast to be $500,000 in 2021. The forecasted marginal revenue function for 2021is:
a. MR = 200,000 − 0.004Q
b. MR = 424 − 0.002Q
c. MR = 110 − 0.002Q
d. MR = 424 − 0.004Q
e. MR = 120 − 0.002Q
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-80 Using time-series data, the demand function for a profit-maximizing monopolist has been estimated as
where is the amount sold, P is price, M is income, and is the price of a related good. The estimated values for M and in 2021are $25,000 and $200, respectively. The short-run marginal cost curve for this firm has been estimated as:
Total fixed cost is forecast to be $500,000 in 2021.What is the average variable cost function?
a. AVC = 200 −0.012Q + 0.000002Q2
b. AVC = 200 − 0.048Q + 0.000012Q2
c. AVC = 200 − 0.048Q + 0.000036Q2
d. AVC = 200 − 0.012Q + 0.000018Q2
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-81 Using time-series data, the demand function for a profit-maximizing monopolist has been estimated as
where is the amount sold, P is price, M is income, and is the price of a related good. The estimated values for M and in 2021are $25,000 and $200, respectively. The short-run marginal cost curve for this firm has been estimated as:
Total fixed cost is forecast to be $500,000 in 2021.What is the profit-maximizing (or loss-minimizing) level of production?
a. 0 units, the firm should shut down.
b. 1,000 units
c. 1,800 units
d. 2,000 units
e. 8,000 units
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-82 Using time-series data, the demand function for a profit-maximizing monopolist has been estimated as
where is the amount sold, P is price, M is income, and is the price of a related good. The estimated values for M and in 2021are $25,000 and $200, respectively. The short-run marginal cost curve for this firm has been estimated as:
Total fixed cost is forecast to be $500,000 in 2021. What is the value of average variable cost at the optimal level of output?
a. $76
b. $96
c. $232
d. $196
e. $112
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-83 Using time-series data, the demand function for a profit-maximizing monopolist has been estimated as
where is the amount sold, P is price, M is income, and is the price of a related good. The estimated values for M and in 2021are $25,000 and $200, respectively. The short-run marginal cost curve for this firm has been estimated as:
Total fixed cost is forecast to be $500,000 in 2021.What is the optimal price?
a. This is irrelevant since the firm will not produce in the short run.
b. $200
c. $250
d. $408
e. $520
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-84 Using time-series data, the demand function for a profit-maximizing monopolist has been estimated as
where is the amount sold, P is price, M is income, and is the price of a related good. The estimated values for M and in 2021are $25,000 and $200, respectively. The short-run marginal cost curve for this firm has been estimated as:
Total fixed cost is forecast to be $500,000 in 2021. The firm's forecasted profit (loss) in 2021is
a. a loss of $100,000.
b. a loss of $500,000.
c. a profit of $100,000.
d. a profit of $500,000.
e. a profit of $908,000.
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-85 A price-setting firm faces the following estimated demand and average variable cost functions:
where 
is the quantity demanded, P is price, M is income, and 
is the price of a related good. The firm expects income to be $40,000 and 
to be $53. Total fixed cost is $2,600,000. What is the estimated demand function for the firm?
a. 
= 1,040,000 − 2,000P
b. 
= 800,000 − 4,000P
c. 
= 800,000 − 500P
d. 
= 1,600,000 − 2,000P
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-86 A price-setting firm faces the following estimated demand and average variable cost functions:
where is the quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $53. Total fixed cost is $2,600,000. What is the estimated marginal revenue function for the firm?
a. MR = 800 − 0.002Q
b. MR = 800 − 0.004Q
c. MR = 1,600 − 0.004Q
d. MR = 520 − 0.001Q
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-87 A price-setting firm faces the following estimated demand and average variable cost functions:
where is the quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $53. Total fixed cost is $2,600,000. What is the profit-maximizing choice of output?
a. 8,000 units
b. 10,000 units
c. 12,000 units
d. 20,000 units
e. 0 units, the firm shuts down
Difficulty: 02 Medium
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-88 A price-setting firm faces the following estimated demand and average variable cost functions:
where is the quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $53. Total fixed cost is $2,600,000. What price should the firm charge in order to maximize profit?
a. $356
b. $400
c. $420
d. $445
e. $510
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-89 A price-setting firm faces the following estimated demand and average variable cost functions:
where is the quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $53. Total fixed cost is $2,600,000. The firm should ______________ because _______________.
a. shut down, P = $356 < TVC = $445
b. operate, P = $510 > AVC = $300
c. operate, P = $560 > AVC = $160
d. operate, P = $600 > AVC = $255
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-90 A price-setting firm faces the following estimated demand and average variable cost functions:
where is the quantity demanded, P is price, M is income, and is the price of a related good. The firm expects income to be $40,000 and to be $53. Total fixed cost is $2,600,000. What is the firm's profit?
a. $1,470,000
b. $1,200,000
c. $1,600,000
d. −$2,600,000
Difficulty: 03 Hard
Topic: Implementing the Profit-Maximization Output and Pricing Decision
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-06
12-91 In order to maximize profit, a firm that produces its output in two plants will produce the level of total output at which the last unit of output produced adds the same amount to total revenue as to the
a. first plant's total cost.
b. second plant's total cost.
c. firm’s total cost
d. both a and b
Difficulty: 01 Easy
Topic: Multiplant Firms
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 12-07
12-92 A firm is producing 10,000 units of output in two plants, A and B, and each plant is producing 5,000 units of output. The marginal cost in plant A is $10 and the marginal cost in B is $6. To reduce the cost of producing 10,000 units the firm should
a. produce more in A and less in B.
b. produce less in A and more in B.
c. produce it all in B because B is the lower cost plant.
d. do nothing since the output in each plant is equal.
Difficulty: 01 Easy
Topic: Multiplant Firms
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-07
12-93 To maximize its profit, a firm with two plants should
a. produce the output at which total marginal cost equals marginal revenue.
b. choose the profit-maximizing output then allocate it equally between the two plants.
c. allocate output so that marginal cost is the same in two plants
d. both a and b
e. both a and c
Difficulty: 02 Medium
Topic: Multiplant Firms
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-07
12-94 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
What is the firm's marginal revenue function?
a. MR = 12 − (1/5)P
b. MR = 12 − (1/5)Q
c. MR = 120 – 20P
d. MR = 120 − 20Q
e. none of the above
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-95 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
What is the firm's total marginal cost function?
a. MC = 24 + (1/50)Q
b. MC = 10 + (3/15)Q
c. MC = (80/15) + (1/15)Q
d. MC = 2 + (1/10)Q
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-96 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
In order to maximize profit, how many units of output should the firm produce?
a. 10
b. 15
c. 25
d. 45
e. 50
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-97 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
What is the profit-maximizing price?
a. $7
b. $8
c. $9
d. $9.50
e. none of the above
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-98 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
How should the firm allocate total output between the two plants in order to maximize profit?
a. produce 5 units in plant A, 10 units in plant B
b. produce 15 units in plant A, 10 units in plant B
c. produce 20 units in plant A, 20 units in plant B
d. produce 20 units in plant A, 25 units in plant B
e. none of the above
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-99
The figure above shows the demand and cost conditions for a firm with two plants. In order to maximize profit, how many units of output should the firm produce?
a. 10
b. 20
c. 30
d. 40
e. 50
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-100
The figure above shows the demand and cost conditions for a firm with two plants. What is the profit-maximizing price?
a. $20
b. $30
c. $40
d. $50
e. $60
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-101
The figure above shows the demand and cost conditions for a firm with two plants. How should the firm allocate total output between the two plants in order to maximize profit?
a. produce 10 units in plant 1, 20 units in plant 2
b. produce 30 units in plant 1, 20 units in plant 2
c. produce 40 units in plant 1, 40 units in plant 2
d. produce 40 units in plant 1, 50 units in plant 2
e. produce 55 units in plant 1, 60 units in plant 2
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-102 In order to maximize profit, a firm that produces its output in two plants will allocate total output between the two plants so that
a. marginal cost is equal for the two plants.
b. marginal cost for the firm is equal to the sum of the plants' marginal costs.
c. marginal revenue for the firm is equal to the sum of the plants' marginal costs.
d. all of the above
Difficulty: 02 Medium
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-103 A radio manufacturer has two plants -- one in Taiwan and one in California. At the current allocation of total output between the two plants, the last unit of output produced in the Taiwan plant added $8 to total cost, while the last unit of output produced in the California plant added $6 to total cost. In order to maximize profit, the firm should
a. keep the allocation between plants unchanged.
b. produce all its output in the Taiwan plant.
c. produce all its output in the California plant.
d. switch some output from the California to the Taiwan plant.
e. switch some output from the Taiwan to the California plant.
Difficulty: 01 Easy
Topic: Multiplant Firms
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-07
12-104 A radio manufacturer has two plants -- one in Taiwan and one in California. At the current allocation of total output between the two plants, the last unit of output produced in the Taiwan plant added $8 to total cost, while the last unit of output produced in the California plant added $6 to total cost. If the firm switches one unit of output from the California to the Taiwan plant, then
a. profit will increase $6.
b. profit will increase $14.
c. profit will decrease $2.
d. profit will decrease $6.
Difficulty: 01 Easy
Topic: Multiplant Firms
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-07
12-105
The demand for dishwashers facing the AllClean Co. is given in the figure above. The firm manufactures dishwashers in two plants. MC1 and MC2 are the marginal cost curves for those two plants. How many dishwashers should the firm produce?
a. 40
b. 50
c. 70
d. 80
e. 100
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-106
The demand for dishwashers facing the AllClean Co. is given in the figure above. The firm manufactures dishwashers in two plants. MC1 and MC2 are the marginal cost curves for those two plants. What price should the firm set?
a. $25
b. $30
c. $40
d. $45
e. $55
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-107
The demand for dishwashers facing the AllClean Co. is given in the figure above. The firm manufactures dishwashers in two plants. MC1 and MC2 are the marginal cost curves for those two plants. How should the firm allocate total output between the two plants in order to maximize
profit?
a. 10 to plant 1, 40 to plant 2
b. 20 to plant 1, 30 to plant 2
c. 40 to plant 1, 40 to plant 2
d. 20 to plant 1, 60 to plant 2
e. 20 to plant 1, 50 to plant 2
Difficulty: 03 Hard
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-108 A firm with two factories, one in Michigan and one in Texas, has decided that it should produce a total of 500 units of output in order to maximize profit. The firm is currently producing 200 units in the Michigan factory and 300 units in the Texas factory.
At this allocation between plants, the last unit of output produced in Michigan added $5 to total cost, while the last unit of output produced in Texas added $3 to total cost. The firm
a. is maximizing profit; should keep producing 200 units in Michigan and 300 units in Texas.
b. should produce 250 units in each factory.
c. should produce more in the Michigan factory and less in the Texas factory.
d. should produce more in the Texas factory and less in the Michigan factory.
Difficulty: 02 Medium
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-109 A firm with two factories, one in Michigan and one in Texas, has decided that it should produce a total of 500 units of output in order to maximize profit. The firm is currently producing 200 units in the Michigan factory and 300 units in the Texas factory.
At this allocation between plants, the last unit of output produced in Michigan added $5 to total cost, while the last unit of output produced in Texas added $3 to total cost. If the firm produces 201 units in Michigan and 299 units in Texas instead:
a. total cost will decrease $2
b. profit will increase $2
c. total cost will decrease $3
d. both a and b
e. none of the above
Difficulty: 01 Easy
Topic: Multiplant Firms
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-07
12-110 In order to maximize profit, a firm that produces its output in two plants will allocate
total output between the two plants so that
a. marginal cost is equal for the two plants.
b. marginal revenue is equal for the two plants.
c. marginal cost for the firm is equal to the sum of the plants' marginal revenue.
d. both a and b
e. all of the above
Difficulty: 01 Easy
Topic: Multiplant Firms
AACSB: Reflective Thinking
Blooms: Understand
Learning Objective: 12-07
12-111 The inverse demand equation for a monopoly firm is P = 60 – 0.015Q. The monopolist faces constant costs of production in the long run with LAC = LMC = $30. At the profit-maximizing price of $___________, the monopolist earns economic profit of $_________.
c. $40; $0
d. $40; 12,000
e. none of the above
Difficulty: 02 Medium
Topic: Profit-Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
12-112 The inverse demand equation for a monopoly firm is P = 60 – 0.015Q. The monopolist faces constant costs of production in the long run with LAC = LMC = $30. At the profit-maximizing price, the elasticity of demand is ________, which is __________ (elastic, inelastic, unit elastic) as expected.
a. –1.0; unit elastic
b. –3.0; elastic
c. –0.50; inelastic
d. –2; elastic
e. none of the above
Difficulty: 02 Medium
Topic: Profit-Maximization Under Monopoly: Output and Pricing Decisions
AACSB: Analytical Thinking
Blooms: Apply
Learning Objective: 12-03
Document Information
Connected Book
Foundations of Business Analysis 13th Edition | Test Bank with Answer Key
By Christopher R. Thomas
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