Multiple-Choice Questions
1. A company is producing 1,000 units. At this output level, price is $1.50, and marginal revenue is $1.25. Average total cost is $1.10, and marginal cost is $1.40. What can we conclude from this information?
a. The company is producing too much.
b. The company should produce more.
c. The company is maximizing profit at this output.
d. Not possible to determine.
2. Sal’s Pizza Shop has a unique recipe for pizza, and currently its optimal price is $20 per pizza at a quantity of 200 pizzas per week. Its marginal cost is $12 per pizza when it produces fewer than 180 pizzas per week. The marginal cost is $15 per pizza when it produces 180 to 210 pizzas per week. The marginal cost is $18 per pizza when it produces between 211 and 300 pizzas per week. The staff cannot produce more than 300 pizzas per week. Assuming that fixed costs are $300 per week, its marginal revenue from the 200th pizza sold this week is:
a. $20
b. $12
c. $15
d. $17.57
3. A sofa manufacturer can produce 10 sofas for $2,500 and 12 sofas for $2,760. What is the difference between the average cost per sofa for 12 sofas and the marginal cost of the 12th sofa?
a. $100
b. $130
c. $230
d. $260
4. A firm can hire 10 workers at a wage of $10 but has to pay a wage of $12 to get 11 workers. What is the marginal cost of the 11th worker?
a. $12
b. $32
c. $100
d. $132
5. Which of the following choices represents an extent decision?
a. A firm is considering whether to enter a business.
b. A firm is considering whether to leave a business.
c. A firm is considering whether to sell a division.
d. The human resources director is deciding how many employees to lay off.