MANAGERIAL ECONOMICS
PLEDGE:
"On my honor, I have neither given nor received any unauthorized aid on this exam,
nor am I aware of anyone giving or receiving any unauthorized aid on this exam."
______________________
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MANAGERIAL ECONOMICS
PLEDGE:
"On my honor, I have neither given nor received any unauthorized aid on this exam,
nor am I aware of anyone giving or receiving any unauthorized aid on this exam."
________________________________________
Signature
________________________________________
Name (Print)
SHORT PROBLEMS (40 pts, 10pts each)
1. Marginal Analysis (P2.3). Characterize each of the following statements as true or false, and
explain your answer.
A. If marginal revenue is less than average revenue, the demand curve will be downward
sloping.
B. Profits will be maximized when total revenue equals total cost.
C. Given a downward-sloping demand curve and positive marginal costs, profit-maximizing
firms will always sell less output at higher prices than will revenue-maximizing firms.
D. Marginal cost must be falling for average cost to decline as output expands.
E. Marginal profit is the difference between marginal revenue and marginal cost and will
always equal zero at the profit-maximizing activity level.
SOLUTION
A. True. The demand curve is the average-revenue curve. Since average revenue is falling along
a downward sloping demand curve, marginal revenue is less than average revenue.
B. False. Profits are maximized when marginal revenue equals marginal cost. Profits equal zero
at the breakeven point where total revenue equals total cost.
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C. True. Profit maximization involves setting marginal revenue equal to marginal cost. Revenue
maximization involves setting marginal revenue equal to zero. Given a downward-sloping
demand curve and positive marginal costs, revenue-maximizing firms will charge lower prices
and offer greater quantities of output than will profit maximizers.
D. False. Average cost will fall as output expands so long as marginal cost is simply less than
average cost. If this condition is met, average cost will decline whether marginal costs are
falling, rising, or constant.
E. True. Marginal profit equals marginal revenue minus marginal cost and will equal zero at the
profit-maximizing activity level.
2. Demand and Supply Concepts (SG4.2). Describe the effects of each of the following influences
on demand and/or supply conditions in the market for MBAs.
A. An economic recession (fall in national income).
B. An increase in MBA graduate salaries
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