What is the rule of profit maximization in economics

Assignment Help Microeconomics
Reference no: EM13183578

1. If 8 percent increase in the price of one good results in an increase of 4 percent in the quantity

demanded of another good, then it can be concluded that the two goods are:

a) complements.

b) substitutes.

c) independent.

d) normal.

2. The law of diminishing marginal utility explains why:

a) supply curves are upsloping.

b) demand curves are downsloping.

c) real income of the consumer rises when the price of a commodity falls.

d) substitution effect is always higher than income effect mentioned in c) above.

3. A necessary and sufficient condition for a rational consumer to be in equilibrium or at that position where he

maximizes utility is that the marginal utility:

a) of all products he consumes is zero.

b) of all products he consumes is positive.

c) is the same for all products.

d) per last dollar is the same for products consumed.

4. Diminishing returns are observed in increases of production output by adding a variable input to a fixed of

inputs because:

a) the ability or quality of the variable input added decreases are more is used.

b) the firm must lower the price of its product when it produces more units of output.

c) the per unit cost it must pay for the variable input increases as more of the input is used.

d) as more variable input is used, the amount of fixed input per variable input decreases.

5. A necessary and sufficient condition for a rational consumer to be in equilibrium or at that position where he

maximizes utility as he spends the last dollar of his budget is that the marginal utility:

e) of all products he consumes is zero.

f) of all products he consumes is positive.

g) is the same for all products.

h) per dollar for all products is the same.

6. The short run marginal cost (MC) curve eventually rises because of:

a) diseconomies of scale.

b) decreasing per unit fixed costs.

c) diminishing marginal returns.

d) increasing marginal productivity of the variable input.

7. Other things being equal, if the prices of a firm's variable input were to fall:

a) one could predict how unit cost of production would be affected.

b) marginal cost, average variable cost, and average fixed cost would all fall.

c) marginal cost, average variable cost, and average total costs would all fall.

d) average variable cost would rise, but marginal cost would fall.

8. The law of diminishing marginal utility implies that the rate of marginal utility for a commodity:

a) remains constant, regardless of how much of the commodity is consumed

b) remains constant as long as the commodity is still considered useful

c) decreases as more of the commodity is consumed

d) increases as more of the commodity is consumed.

9. Marginal cost is the:

a) rate of change in total fixed cost that results from producing one more unit of output

b) change in total cost that results from producing one more unit of output

c) change in average variable cost that results from producing one more unit of output

d) change in average total cost that results from producing one more unit of output

II. Definitions / Short Essays:

10. State the Law of Supply. Why do the supply curve slopes upward?

11. State the Law of Demand. Why do the demand curve slopes downward?

12. Explain why normal profit is an implicit cost (i.e., subtracted from accounting profits) in our definition of

economic price .

13. Explain why when total output crosses the point of diminishing returns, total output increases at a

decreasing (or slower rate)?

14. State the Law of Diminishing Marginal Utility.

15. State the Law of Diminishing Returns.

 


III. Computations:

A. Utility Maximization

16. Alfredo has $22 of budget to spend. If the price of X and Y are $2 and $4, respectively , how much of each

would he buy to get the best value for his dollar.

Units of X MU of X Units of Y MU of Y

1 20 1 48

2 18 2 40

3 16 3 36

4 14 4 32

5 12 5 24

6 11 6 12

B. Profit Maximization

Monterey Park Leather Goods Corporation, a firm in a purely competitive market ,sells men's leather belts at

$26 each. Its production costs at corresponding total output are shown in the table below below :

Total Average Average Average Marginal Marginal

Output Fixed Cost Variable cost Total Cost Cost Revenue

1 100.00 17.00 117.00

2 50.00 16.00 66.00

3 33.33 15.00 48.33

4 25.00 14.25 39.25

5 20.00 14.00 34.00

6 16.67 14.00 30.67

7 14.29 15.71 30.00

8 12.50 17.50 30.00

9 11.11 19.44 30.55

10 10.00 21.60 31.60

11 9.09 24.00 33.09

____________________________________________________________________

17. Why do the value of Average Fixed Cost begins at a high value of $100 at the first output and

ends at a very low $9.09 at the last output showing in the table?

18. Explain why the value of the Average Total Cost starts at $117.00 and dips to $30 on the at the 8th

output but eventually rises again to $33.09 at the last output.

19. What output should the firm produce to make the most profits at price of $26?

20. What is the rule of profit maximization in economics?

($) ($) ($) ($) ($)

17 26

15 26

13 26

12 26

13 26

14 26

26 26

30 26

35 26

41 26

East Los Angeles College -South Gate Mid-Term Exam July 1, 2013

MICROECONOMICS Summer Session 2013

Name:_________________________

I. Multiple Choices:

1._____ 2.______ 3. ______ 4. _____ 5.______ 6. ______ 7._____ 8._____ 9.______

II. Definitions / Short Essays:

10. State the Law of Supply. Why do the supply curve slopes upward?

11. State the Law of Demand. Why do the demand curve slopes downward?

12. Explain why normal profit is an implicit cost (i.e., subtracted from accounting profits) in our definition

of economic transfer price from the seller to the buyer.

13. Explain why when total output crosses the point of diminishing returns, total output increases at a

decreasing (or slower rate)?

14 . State the Law of Diminishing Marginal Utility.

15. State the Law of Diminishing Returns.

III. Computations:

A. Utility Maximization :

16.. Amount of X_________ Amount of Y________

Show your solution:

B. Profit Maximization

Monterey Park Leather Goods Corporation, a firm in a purely competitive market ,sells men's leather belts at

$26 each. Its production costs at corresponding total output are shown in the table below below :

Total Average Average Average Marginal Marginal

Output Fixed Cost Variable cost Total Cost Cost Revenue

1 100.00 17.00 117.00

2 50.00 16.00 66.00

3 33.33 15.00 48.33

4 25.00 14.25 39.25

5 20.00 14.00 34.00

6 16.67 14.00 30.67

7 14.29 15.71 30.00

8 12.50 17.50 30.00

9 11.11 19.44 30.55

10 10.00 21.60 31.60

12 9.09 24.00 33.09

____________________________________________________________________

17. Why do the value of Average Fixed Cost begins at a high value of $100 at the first output and

ends at a very low $9.09 at the last output showing in the table?

($) ($) ($) ($)

17 26

15 26

13 26

12 26

13 26

14 26

26 26

30 26

35 26

41 26

18. Explain why the value of the Average Total Cost starts at $117.00 and dips to $30 on the at the 8th

output but eventually rises again to $33.09 at the last output.

19. What output should the firm produce to make the most profits at price of $26?

20. What is the rule of profit maximization in economics?

Reference no: EM13183578

Questions Cloud

Explain less inflation and less unemployment : A. Deficits and surpluses could be used to avoid fluctuations in the tax rate. B. Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off. C. A potential cost of defic..
What was indiana corporations net operating income : What is the total amount of the costs listed above that are not direct costs of the Brentwood Store and what was Indiana Corporation's net operating income for the year using variable costing?
State at what temp would benzene boil : Benzene has a heat of vaporization of 30.72 kJ/mol and a normal boiling point of 80.1 degrees Celsius. At what temp would benzene boil
Explain take a turn at the corner : Draw the path taken by Ann as she walks her dog. Represent each segment of Anna's walk with a vector. The vectors should start and end at the centers of the red dots located on the image.
What is the rule of profit maximization in economics : State the Law of Supply. Why do the supply curve slopes upward? State the Law of Demand. Why do the demand curve slopes downward? Explain why normal profit is an implicit cost (i.e., subtracted from accounting profits) in our definitionof economic tr..
Calculate the volume occupied by n2 using the van der waals : Calculate the volume occupied by 1.00 mol N2 using the van der Waals equation in the form of a virial expansion at (a) its critical temperature, (b) its Boyle temperature, and (c) its inversion temperature
Explain atomic radius for copper : atomic radius for Copper ,and assuming the atoms to be rigid spheres,
Find the value of the adjustments : Newbury Drug has recently offered to purchase 25,000 bottles of aspirin that they will sell in their stores under a generic label. Newbury has offered to pay $3.95 for each bottle of aspirin. The controller of Lydek in analyzing the offer has de..
This research project is based on the data set : This research project is based on the data set that will be provided to you. Obtain relevant literature on the topic on which the data set is based. Use part of this in the

Reviews

Write a Review

 

Microeconomics Questions & Answers

  What is the loss minimizing output level

Global Investment Group operates in a perfectly competitive industry with the following Cost and Revenue data: What is the loss minimizing output level for the firm?

  Article review question

Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

  Compute calvin profit-maximizing output level

Compute  Calvin's profit-maximizing output level. Compute the Calvin's economic profits at this activity level. Is this activity level sustainable in long run?

  Elasticity of demand

Price elasticity of demand, Income elasticity of demand and Cross elasticity of demand of toyota corolla car.

  Effect of market shocks on equilibrium quantity and price

Briefly discuss whether this problem provides enough information to determine whether the equilibrium price and quantity of trucks increased or decreased.

  Calculate incremental costs to fit in a production run

The State Department of Transportation has called for tenders to supply 10,000 gallons of blue reflective paint to be delivered within two months. You can foresee fitting in a production run of the blue paint and have decided to bid on the job.

  What is the opportunity cost of producing cloth in zambia

State the commodity in which each country has absolute advantage amd identify the commodity of comparative advantage for each country

  Confirm quantity and price results algebraically

Confirm your quantity and price results algebraically and calculate the price elasticities of demand in each market and discuss these in relation to the prices to be charged in each market.

  What economic and societal factors

which of the three funding measures would you support and why- what economic and societal factors affect the demand and pricing of healthcare services in today's market?

  Discussion on the price matching policies

Assume that the two rival "Super Stores", Walmart and Target both adopt price matching rules. If people can discover lower advertised values on any items they sell, then they will match the lower prices.

  Explain disadvantages of a joint-venture

When a firm focuses on increasing profitability by customizing the firm's good or services so that they provide a good match to tastes in different national markets, it is pursuing A Localization strategy.

  Define marketing strategy emphasizing mass media advertising

An order written by the exporter instructing the importer, or their agent, to pay a specified amount of money at a specified time is a:  Note Payable, Draft, Promissory Note, Check.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd