Herbert simon has concluded that decision making in

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156. Herbert Simon has concluded that decision making in industry is often best described as a. optimizing behavior. b. profit maximizing. M,R c. satisficing. d. saturating. 157. The term “satisficing” for decision-making behavior by many firms was coined by M,R c. Herbert Simon. APPENDIX: THE RELATIONSHIPS AMONG TOTAL, AVERAGE, AND MARGINAL DATA 158. If a firm produces only one unit of output, which of the following must be true? D,A a. Marginal cost, average cost, and total cost are all equal. b. Marginal cost and marginal revenue are equal. b. Marginal cost, marginal revenue, and fixed cost are equal. c. Marginal cost, price, and average variable cost are equal. 159. If a person who weighs 100 lbs. is riding in an elevator and is joined by a person weighing 120 lbs.,  what happens to the average weight of persons on the elevator? E,A ESSAY QUESTIONS 160. According to the text, when management selects a price or quantity, it also selects the other. Explain  why this is true. ANSWER E, A
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Chapter 7/Output, Price, and Profit: The Importance of Marginal Analysis 253 The firm’s demand curve determines what quantity can be sold at various prices. Each point on the  demand curve represents a price-quantity pair. Therefore, selecting one means selecting the other. 161. Given a demand curve, explain how total revenue may be calculated. ANSWER E, I A demand curve consists of the prices and corresponding quantities demanded at those prices. Total  revenue is price times quantity demanded. Therefore, total revenue is the area of a rectangle formed  under the demand curve by the choice of any price-quantity combination. 162. Distinguish between the economist’s definition of profit and the accountant’s definition. Which is  superior for decision making? ANSWER M, R Accounting profit is revenue minus actual, out-of-pocket costs. Economic profit is revenue minus  total costs, including the opportunity cost of all factors. Accounting profit typically is greater than  economic profit. Although more difficult to compute, economic profit is superior because it  incorporates the concept of opportunity cost of resources, including capital and the owner’s forgone  earnings. 163. What rule(s) should a firm follow in deciding optimum output for profit maximization? ANSWER E, R The firm should expand its output as long as the added output contributes more to total revenue than  it does to total cost, which means the spread between total revenue and total cost (that difference is  profit) is increasing. The additions to TR and TC per unit of output are MR and MC, respectively. 
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