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Module 53Profit MaximizationMAIN IDEA(s) Identify clear main ideas or purposes1. ?What is the optimal output rule?2. ?How does a firm determine the profit maximizing level of output?SUPPORTING DETAILS ?Locate and interpret details. Understand the function of a part of a passage. Maximizing Profit3. ?Why should a producer produce up until marginal benefit EQUALS marginal cost?Marginal Analysis to Choose he Profit-Maximizing Quantity of Output4. ?What is the formula for marginal revenue?5. Why does optimal output maximize profit?6. ?Examine Table 53.2. ?How much output does MR get as close to MC without being less than MC?7. ?Examine Figure 53.1: ?Notice that MR=P and where MR=MC determines profit maximization. ?How is this explained in terms of total revenue and total cost.When is Production Profitable8. ?What assumptions should we make regarding explicit and implicit costs?SEQUENTIAL, COMPARATIVE, & CAUSE-EFFECT RELATIONSHIPSOrder sequences of events. Understand the subtleties in relationships between people, ideas, and concepts. Understand implied, subtle, or complex cause-effect relationships.9. ?The optimal output rule says that profit is maximized by producing the quantity at which (a)______________ is equal to (b)__________________. ?Given the firm’s total cost of producing, whether or not the firm earns a profit at that quantity depends on the (c)___________ of the product.10. ?If the firm sells every unit of its output for the same market price, then price is equal to marginal (d)___________________.11. ?In the long run, a firm will remain in business (decide to produce any output at all) only if it earns an economic profit of at least (e)___________________, also known as a (f)____________ profit.MEANING OF WORDSDetermine the appropriate meaning of context-dependent words, phrases, or statements.12. ?Marginal Revenue13. ?Optimal Output Rule14. ?Marginal Cost Curve15. ?Marginal Revenue CurveGENERALIZATIONS AND CONCLUSIONSDraw generalizations and conclusions about people, ideas, and variables. ?16. ?The optimal output rule predicts profitability by...17. ?Marginal benefit and marginal cost analysis explain output by...____1.Wendy sells ice-making machines. She can sell 6 per week at a price of $2,000. If she charges $2,100, she will only sell 5 per week. The marginal benefit of selling the 6th ice-making machine is:a.$2,000.b.$2,100.c.$12,000.d.$22,500.e.$1,500.____2.Some highways have one lane, others have two, three, or more. If each lane costs $10 million per mile, an economist would assume that the total benefit of a three-lane highway must be:a.less than $10 million per mile.b.$10 to $20 million per mile.c.$20 to $30 million per mile.d.$30 million or more per mile.e.$0, as the cost of building the highway is a sunk cost.Number of GamesTotal Benefit00150290312041405152616071648162Table 53-1: Marginal and Total Benefit____3.(Table 53-1: Marginal and Total Benefit) Rodger is deciding how many football games he wants to attend this year. The total benefit that Rodger receives from football games is shown in the table. If tickets to each football game cost $10, then he should attend ________ game(s).a.0b.1c.2d.5e.6____4.(Table 53-1: Marginal and Total Benefit) Rodger is deciding how many football games he wants to attend this year. The total benefit that Rodger receives from football games is shown in the table. If the games are free, he should attend ________ game(s).a.1b.5c.7d.8e.0____5.William installs custom sound systems in cars. If he installs seven systems per day, his total costs are $300. If he installs eight systems per day, his total costs are $400. William will install only eight sound systems per day if the eighth customer is willing to pay at least:a.$300.b.$400.c.$100.d.$50.e.$700____6.Pauli's Pizza offers the following prices: one slice for $2, two slices for $3.50, three slices for $4.50, four slices for $5.00. The marginal cost to the customer of the third slice is:a.$4.50.b.$10.c.$1.d.$2.e.$12.Figure 53-2: Marginal Benefit Curve____7.(Figure 53-2: Marginal Benefit Curve) Using the marginal benefit curve in the figure provided, we can determine that the total benefit of mowing four lawns is approximately:a.$20.b.$23.c.$80.d.$114.e.$65.____8.(Figure 53-2: Marginal Benefit Curve) Using the marginal benefit curve in the figure provided, we can determine that the marginal benefit of mowing the sixth lawn is approximately:a.$115.b.$35.c.$40.d.$200.e.$20.____9.If the marginal benefit received from a good is greater than the marginal cost of production, then:a.society's well-being can be improved if production increases.b.society's well-being can be improved if production decreases.c.society's well-being cannot be improved by changing production.d.the market is producing too much of the good.e.the market is producing the efficient quantity of the good.____10.Quantityof GadgetsProducedTotal Cost0$1001$1052$1103$1154$1205$125Table: The Cost of Producing GadgetsYou own a small manufacturing company that produces gadgets. The table shows the quantity of gadgets that you could produce, and the total cost you incur at each level of production. According to this table, marginal cost is:a.increasing at a constant rate.b.increasing at an increasing rate.c.increasing at a decreasing rate.d.constant and equal to $5.e.decreasing. ................
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