BUSINESS 802FIRST EXAM KEY
Perfect correlation between actual and forecast values is a
necessary but not sufficient condition for perfect forecasts.
forecast values both move with actual values (have perfect correlation)
and have zero mean squared error.
Average costs are minimized or maximized when MC =
To check for a minimum, the second derivative of the average cost
function must be negative, d2AC/dQ2 < 0.
Profit maximization involves setting marginal revenue equal to
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
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.
Marginal profit equals marginal revenue minus marginal cost,
and will equal zero at the profit maximizing activity level.
With a $30,000 inspector salary, the firm will enjoy a net
marginal return of $7,500 (= $37,500 - $30,000) from hiring a third
Hiring a fourth inspector would result in a marginal loss of