Question

The marginal cost of Alexa's Guide to Street People and Their Pets is constant at $5. Alexa sells 5,000 copies per year at $20 per copy. She would like to increase readership and hold total profit constant. If the price goes to $15, how many copies must she sell?

a. 10,000

b. 9,000

c. 7,500

d. 6,000

____ 58. When a firm's fixed cost rises, its total profit curve shifts

a. up at every output level.

b. down at every output level.

c. left at every profit level.

d. right at every profit level.

Table 8-1

Output (units) 0 1 2 3 4 5

Total Revenue ($) 0 9 16 21 27 31

Total Cost ($) 10 12 15 19 26 35

____ 59. At optimal output, the firm described in Table 8-1 sells its output at a price of

a. $5.40.

b. $6.25.

c. $7.

d. $8.

____ 60. An airline can profit by offering standby customers an unsold seat at a substantial discount just before takeoff because

a. additional passengers are needed to balance the load.

b. the marginal cost of additional passengers is very small.

c. additional passengers add little to fixed costs.

d. such passengers add more to profits than do those with reserved seats.

Answer 1

(Question 1) Option (c)

Profit = Quantity x (Price - MC), therefore if new number of copies be Q, then

Q x $(15 - 5) = 5,000 x $(20 - 5)

Q x $10 = 5,000 x $15

Q = 7,500

(Question 58) Option (b)

Since Total profit = Revenue - Variable cost - Fixed cost, an increase in fixed cost decreases profit, shifting total profit curve downward at every output level.

(Question 59) Option (c)

Profit (= revenue - Costs) is maximum (= $2) when revenue is $21 and cost is $19.

Price = revenue / quantity = $21 / 3 = $7

(Question 60) Option (b)