Profit Maximization

Question 1

One of the most important managerial tools

Answer 1

Marginal Analysis

Question 2

It states that optimal managerial decisions involve comparing the marginal benefits and marginal costs

Answer 2

Marginal Analysis

Question 3

“What is the maximum level of net benefits” formula

Answer 3

N(Q)= B(Q) - C(Q); Replace Q

Question 4

What is another word of net benefits?

Answer 4

Profits

Question 5

“What level of Q maximizes net benefits”? Formula

Answer 5

MC = MB

Question 6

“What is the marginal benefit/cost at this level of Q?”

Answer 6

MB/MC(Q)= N(Q)…. ; replace Q from the marginal function

Question 7

Where managers increase the managerial control variable, so the margin benefits would equal marginal costs

Answer 7

Marginal Principle

Question 8

The change in total benefits arising from a change in managerial control variable

Answer 8

Marginal Benefit; MB(Q)

Question 9

The change in total costs arising from a change in the managerial control variable.

Answer 9

Marginal cost; MC (Q)

Question 10

Formula for marginal net benefits

Answer 10

MNB(Q)= MB(Q) - MC(Q)

Question 11

A person who directs resources to achieve a stated goal

Answer 11

Manager

Question 12

The science of making decisions in the presence of scarce resources

Answer 12

Economics

Question 13

TRUE OR FALSE

Resources are anything used to produce a good or service to achieve a goal

Answer 13

TRUE

Question 14

TRUE OR FALSE

Making decisions does not mean you have to give up another option because resources are unlimited.

Answer 14

False; Scarcity implies that by making one choice, you give up another

Question 15

TRUE OR FALSE

Economic decisions involve the efficient allocation of scarce resources

Answer 15

TRUE

Question 16

What is a manager’s task?

Answer 16

To effectively allocate resources to meet the goal

Question 17

TRUE OR FALSE

Managers can simply trust their guts when making a sound decision

Answer 17

FALSE; The key to making sound deicdions is to know what information is needed to make an informed decision and then to collect and process the data.

Question 18

Economics of effective management 6 basic principles

Answer 18

• Identify goals and constraints
• Recognize the nature and importance of profits
• Understand incentives
• Understand markets
• Recognize the Time value of money
• Use marginal Analysis

Question 19

TRUE OR FALSE

Contraints are not necessarily an artifact of scarcity.

Answer 19

FALSE; Contraints are artifacts of scarcity

Question 20

TRUE OR FALSE

The first step making sound decisions varies on the underlying goals of the manager

Answer 20

TRUE

Question 21

TRUE OR FALSE

Constraints does not have an effect in reaching goals

Answer 21

FALSE; Constraints make it difficult to reach goals

Question 22

The total amount of money taken in from sales (Total revenue) - (cost of production)

Answer 22

Accounting profits

Question 23

The difference between the total revenue and the total opportunity cost

Answer 23

Economic Profit

Question 24

The explicit cost if a resource plus the implicit cost of giving up its best alternative use

Answer 24

Opportunity cost

Question 25

TRUE OR FALSE

Implicit costs are easily detected

Answer 25

False; Implicit costs are hard to measure and therefore managers often overlook them

Question 26

TRUE OR FALSE

The firm’s goal to maximize profits is bad for society and individuals who want to maximize profits are self-interested and undesirable

Answer 26

False; A firm that pursues its self interest ultimately meets the needs of society

Question 27

TRUE OR FALSE;

Profits signal to resource holders where resources are most highly valued by society

Answer 27

TRUE

Question 28

TRUE OR FALSE

As more firms enter the industry, the market price goes up and economic profits rise

Answer 28

False; as more firms enter the industry, the market price goes down and economic profits decline

Question 29

TRUE OR FALSE

Incentives have no effect how resources are used and how hard workers work.

Answer 29

FALSE; Incentives affect how resources are used and how hard workers work

Question 30

TRUE OR FALSE

There are two sides to every transaction in a market

Answer 30

TRUE

Question 31

Three sources of Rivalry

Answer 31

• Consumer - Producer rivalry
• Consumer - Consumer rivalry
• Producer - Producer rivalry