A frozen food company is currently producing 1,000 TV dinners. At this output le
ID: 2505969 • Letter: A
Question
A frozen food company is currently producing 1,000 TV dinners. At this output level, price is $2.50 per unit and marginal revenue is $2.25. Average total cost is $2.10 and marginal cost is $2.40. What can you conclude from this information?
The current level of output produced and sold is too high and the company should consider scaling back production
It is not possible to determine anything with the information provided
Price is currently higher than average cost so the firm has to expand output until these two are equal to maximize profits
The company is maximizing profits given the current level of output and should thus leave it unchanged
The current level of output is not enough and the company should produce more
You estimate the weekly inverse demand curve for stationary bikes you manufacture to be P = $300 - $6Q, and your average cost at a constant $12. If marginal revenue is MR = $300 - $12Q, the optimal (profit maximizing) number of units is (Hint: use AC to estimate the Total Cost function):
8
48
24
25
4.5
Inventory costs
Quarterly interest payments made on a variable-rate $1M long-term loan used to expand the factory a year ago.
An NBA player's lump-sum royalty payment to endorse the shoe
Property taxes on the manufacturing facility paid to the local government.
Electricity to run manufacturing equipment
Direct labor costs at the manufacturing plant
Cost of leather used to produce the shoes
Monthly insurance payments on the real estate used by the manufacturer
True
False
Based on your answer above, assume the businessman embarks on the project but did too little market research and failed to realize the market for golf clubs was already fairly saturated. As such, he can now expect to sell no more than 10,000 units. He also realizes his MR = $100 and his MC = $90 for every unit he could sell. Despite the fact the venture cannot be profitable, the businessman can minimize his losses by producing and selling clubs in the short run.
True
False
You believe the demand for good peanut butter depends on the price of the product itself, Ppb, the price of a related product, in this case jelly, Pj, and Income, I. You estimate the demand function to be:Qdpb = a0 + a1Ppb + a2Pj + a3I The sign and magnitude of the coefficients (a1, a2, and a3) establishes the relationship between quantity of peanut butter demanded, Ppb, Pj, and I. From the Law of Demand you know that a1 will be:
Negative
Cannot be determine without more information
A high number in absolute value
Positive
Zero
True
False
In the "Morality of Profit," Tom Palmer makes the case that profits are not only rational, but also moral. In order for profits to be moral:
The have to emerge from voluntary exchange between a buyer and a seller
All it takes is for someone to violate others' property rights by restricting their ability to buy from other sellers that would sell for less
Producers need to receive government subsidies to produce things a governments officials deemed beneficial to consumers
Society must to take into account what is best for consumers, whether they agree with this or not
Tom Palmer does not try to make the argument profits are moral, just that they are rational
Why are green peppers consistently cheaper than red peppers? (Hint: what does it take for green peppers to turn red?)
Red peppers are sweeter than green peppers and people like sweet.
Red peppers are ripe green peppers and since sellers prefer money today to money tomorrow, if consumers really want red peppers they will have to sell for more.
Green peppers are used in industrial cooking for their intense flavor.
It doesn't matter to consumers which color the peppers are; they all taste the same.
Given the additional time farmers have to wait to harvest red peppers, if both green pepper and red peppers sold for the same price, no seller would be willing to supply a red pepper.
c. and d. are correct
b. and e. are correct
a.The current level of output produced and sold is too high and the company should consider scaling back production
b.It is not possible to determine anything with the information provided
c.Price is currently higher than average cost so the firm has to expand output until these two are equal to maximize profits
d.The company is maximizing profits given the current level of output and should thus leave it unchanged
e.The current level of output is not enough and the company should produce more
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