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Chapter 9
Maximizing Profit
TRUE/FALSE
Answer: T 1. If the total cost curve is greater than the total revenue curve at every level of output, the
Diff: 1 firm incurs a loss.
Answer: F 2. There are situations in which average revenue and price are different.
Diff: 3
Answer: T 3. If marginal cost equals marginal revenue on the downward-sloping segment of the
Diff: 4 marginal cost curve, then increasing production until marginal cost again equals marginal
revenue, this time on the upward-sloping segment of the marginal cost curve, is a profit-
maximizing decision.
Answer: T 4. If a firm faces a price of $12 regardless of how many units it produces and the marginal
Diff: 1 cost is constant at $10 regardless of how many units it produces, then theoretically, the
firm should never stop producing.
Answer: F 5. If at 4,000 units, the price the firm can charge is higher than its AVC and lower than its
Diff: 4 ATC, then the firm will earn a profit.
Answer: F 6. Profit maximization can occur at some output level where marginal cost and marginal
Diff: 5 revenue are not equal.
Answer: F 7. If a firm’s marginal revenue is equal to marginal cost at an output level where average
Diff: 5 variable cost is rising, the firm should shut down.
Answer: T 8. Once profit is maximized at the output level where MR = MC, profit can be calculated by
Diff: 2 subtracting the ATC from price and multiplying the result by the quantity produced.
Answer: F 9. If: (1) you produce 1,000 units, (2) your total revenue is $7,500, (3) the
Diff: 4 wage rate you pay each of the 10 workers you hired is $9.50 per hour, and (4) they each
work 8 hours to produce that 1,000 units, then you should not shut down.
Answer: F 10. If TR > TC, the firm should produce more of whatever it is producing.
Diff: 4
Answer: T 11. Picture the curve. The total revenue curve originates at the origin.
Diff: 5
Answer: F 12. Following the MC = MR rule to profit maximization tells us how much profit can be
Diff: 3 made.
Answer: F 13. Setting P = ATC allows us to calculate total profit or loss.

Diff: 3
Answer: T 14. If, at its profit-maximizing output level, the price of the good is less than average variable
Diff: 3 cost, the firm should shut down immediately.
Maximizing Profit — 244

Chapter 9 Chapter 9 Chapter —
Comprehensive Micro Macro
Answer: F 15. Corporate managers and stockholders usually have the same goal of maximizing profit.
Diff: 2
Answer: T 16. According to William Baumol, many corporate managers engage in empire-building.
Diff: 1
Answer: T 17. Adam Smith believed that the rich derive the most enjoyment from their wealth by
Diff: 3 knowing that others observe their consumption.
Answer: F 18. The Marshall Kiwanis Club noticed the organizer of their bratwurst booth, at the
Diff: 2 Celebrate Marshall Festival, seemed more interested in the size and flair of their booth
than the cost of achieving it. This excessive interest in prestige of the booth rather than
profits made for charity is an example of stakeholder rights.
Answer: F 19. The profit outcome achieved by setting MC = MR is the same as that achieved by setting
Diff: 2 TR = TC.
Answer: F 20. For the level of output, Q, firm profit is the same whether measured by TR – TC or
Diff: 3 (AR – AVC) * Q.
Answer: F 21. The goals of charitable organizations are inevitably inconsistent with the principles
Diff: 2 associated with profit maximization.
Answer: F 22. The MR = MC rule is no longer accepted by most economists as representing the
Diff: 1 behavior of firms.
Answer: F 23. All economists agree that the firm’s only goal is to maximize profit.
Diff: 1
Answer: F 24. A firm will never operate at a loss.

Diff: 1
Answer: T 25. Marginal cost is always greater than zero, regardless of the output level.
Diff: 4
Answer: F 26. A firm would be maximizing profit if MR > MC and TR > TC.
Diff: 3
Answer: T 27. ATC always exceeds AVC.

Diff: 4
Answer: F 28. Each firm knows where its MR = MC output level is located.
Diff: 2
Answer: T 29. If MR = MC, then TR and TC differ by a maximum if positive profits are earned.
Diff: 5
Answer: T 30. If MR > MC, a profit-maximizing firm should increase output.

Diff: 3
Answer: F 31. Producing where MR = MC guarantees that the firm earns a profit.
Diff: 3
Answer: T 32. Price = MR only if the price is fixed.

Diff: 3

MULTIPLE CHOICE
Answer: D 1. At the last board meeting a member proposed that the Marshall Lions Club lower its
Diff: 4 hamburger price at the Celebrate Marshall Festival. He argued this would sell more
hamburgers for charity.
a. He is wrong.
b. Revenues would decrease.
c. Revenues would rise.
d. Revenues are not what matters.
e. Profits would increase.
Answer: B 2. The Marshall Lions Club increased the price of hamburgers at their Celebrate Marshall
Diff: 4 Festival and found that revenues increased. This is likely because, ceteris paribus,
a. the quality of the hamburgers was different
b. the demand for their hamburgers was inelastic
c. the demand for their hamburgers was elastic
d. the quality of the hamburgers was lower
e. more people came to the festival
Answer: B 3. The town of Marshall’s Boy Scout Troop 1099 decreased car parking prices at the
Diff: 3 Celebrate Marshall Festival and found they made higher profits. This likely occurred
because
a. marginal cost was equal to marginal revenue
b. marginal revenue was higher than marginal cost
c. marginal revenue was less than marginal cost
d. demand was inelastic
e. marginal revenue was increasing
Answer: D 4. The Skandusky Downtown Development Corporation (SDDC), a nonprofit entity, was
Diff: 3 accused by local taxpayers of being overstaffed and too lavishly accommodated for its
purpose of achieving its community development goals. This accusation is an argument
that the SDDC
a. is managed by stakeholders
b. staff is following the MC = MR rule
c. is an example of the Lester-Machlup controversy
d. is engaged in empire building
e. is minimizing community losses
Answer: D 5. Which of the following is not possible when a firm is maximizing its profits?
Diff: 4 a. MC = MR
b. AVC is at its minimum point
c. AFC < AVC
d. MC = MR and MC is decreasing
e. MC = MR and MC is increasing
Answer: B 6. Suppose you were working for Richstone’s bakery and calculating whether the bakery
Diff: 3 was making a profit, considering the recent increase in rent. You have data for price (P),
MR, ATC, MC, AVC, at the quantity of 1,000 breads a day. Among the other
relationships you consider is (P – ATC) which measures the firm’s
a. total profit
b. profit per unit of output
c. marginal profit
d. total revenue
e. average variable cost

Answer: D 7. Suppose you were working for Richstone’s bakery and calculating whether the bakery
Diff: 3 was making a profit, considering the recent increase in rent. You have data for price (P),
MR, ATC, MC, AVC, at the quantity of 1,000 breads a day. The firm’s total profit is
calculated by
a. P – AVC
b. P – ATC
c. P – MC
d. (P – ATC)Q
e. TR – TVC
Answer: E 8. Suppose you were working for Richstone’s bakery and calculating whether the bakery
Diff: 2 was making a profit, considering the recent increase in rent. You have the following data:
P = $20, AVC = $10, AFC = $12, and quantity of birthday cakes produced a day is 20.
You conclude that the bakery ends up at the end of the day with a
a. loss of $10
b. profit of $10
c. loss of $20
d. profit of $40
e. loss of $40
P = $20, AVC = $10, AFC = $10, and quantity of birthday cakes produced a day is 20.
You conclude that the bakery ends up at the end of the day with a
a. loss of $10
b. profit of $10
c. loss of $20
d. no loss, no profit
e. loss of $40
P = $20, AVC = $10, AFC = $8 and quantity of birthday cakes produced a day is 20.
a. loss of $10
b. profit of $10
c. profit of $20
d. profit of $40
e. loss of $40
Answer: D 11. It is clear from the text that most economists assume the primary goal of all firms is to
Diff: 1 a. maximize sales
b. minimize cost
c. maximize efficiency
d. maximize profit
e. minimize loss
Answer: C 12. At the end of the day, Gracia’s Pizza looks into the cash register to count up the day’s
Diff: 3 total revenue. Another way of calculating its total revenue would be to find
a. price × average revenue
b. price × marginal revenue
c. price × quantity
d. marginal revenue × average revenue
e. marginal revenue × marginal cost

Answer: E 13. Total revenue is a term economists use to describe the

Diff: 2 a. price the firm charges for its goods
b. money remaining after costs are paid
c. average profit earned per good sold
d. total profit earned by the firm
e. money the firm receives selling its goods
Answer: A 14. Technically speaking, when the firm’s output level is zero, its total revenue equals
Diff: 1 a. zero
b. its fixed cost
c. its variable cost
d. its marginal revenue
e. its average revenue
Exhibit I-1
Price Quan tity
$20 10
19 11
18 12
17 13
16 14
Answer: D 15. In Exhibit I-1, if the firm charges $18, total revenue will equal
Diff: 1 a. $12
b. $18
c. $108
d. $216
e. $324
Answer: A 16. In Exhibit I-1, the marginal revenue of the twelfth unit equals
Diff: 3 a. $7
b. $18
c. $216
d. $1
e. $19
Answer: C 17. J. J. Joubert, of the Joubert Dairy, tells his friend Jacques that the average revenue he gets
Diff: 3 for a liter of milk is $1. We know then that $1 is the dairy’s
a. marginal profit
b. marginal cost
c. price
d. total revenue
e. total profit
Answer: B 18. Technically speaking, average revenue is
Diff: 2 a. price × marginal revenue
b. total revenue/quantity
c. total revenue/total cost
d. marginal revenue/marginal cost
e. price × marginal cost

Answer: C 19. If you know what marginal cost is, then you should know what marginal revenue is. It’s
Diff: 2 the change in
a. total profit generated by a change in quantity
b. price generated by a change in quantity
c. total revenue generated by a change in quantity
d. output generated by a $1 change in price
e. average revenue generated by a change in quantity
Answer: D 20. Peter Schran plays no favorites. It’s one price for all customers. Under this circumstance,
Diff: 4 we know that
a. MR = MC
b. P = MC
c. TR = TC
d. P = AR
e. P = TR
Answer: A 21. If price is unchanging across the firm’s entire production range, then for the firm selling
Diff: 4 bagels at $0.40 each,
a. P = MR = AR
b. MR = MC = AC
c. TR = TC = 0
d. TR – TC = 0
e. AC = MC = TC
Exhibit I-2
Unit Marginal Marginal

Quantity Cost Revenue
12 $ 5 $9
13 6 9
14 7 9
15 8 9
16 9 9
17 10 9
Answer: D 22. In Exhibit I-2, the firm is currently producing 14 units. What would you advise this firm
Diff: 4 to do?
a. decrease quantity to 13
b. increase quantity to 15
c. remain at 14 units
d. increase quantity to 16
e. increase quantity to 17
Answer: C 23. In Exhibit I-2, this firm is currently producing 16 units. What would you advise this firm
Diff: 3 to do?
a. decrease quantity to 13
b. increase quantity to 15
c. remain at 16 units
d. decrease quantity to 14
e. increase quantity to 17
Answer: D 24. In Exhibit I-2, at what quantity does the firm maximize profit?
Diff: 3 a. 13 units
b. 14 units
c. 15 units
d. 16 units
e. 17 units

Answer: E 25. Suppose, in Exhibit I-2, that the firm is maximizing profit. How much profit is it
Diff: 5 earning?
a. zero
b. $1
c. $16
d. –$16
e. insufficient data to determine profit
Exhibit I-3
$
MC
MR
40 45 50 Quantity
Answer: B 26. In Exhibit I-3, the firm is currently producing 40 units. What would you advise the firm
Diff: 3 to do?
a. shut down
b. increase quantity
c. stay at 40 units
d. decrease quantity
e. decrease price
Answer: D 27. In Exhibit I-3, the firm is producing 50 units. What would you advise this firm to do?
Diff: 3 a. shut down
c. stay at 50 units
e. decrease price
Answer: B 28. In Exhibit I-3, a firm is currently producing 45 units. What would you advise this firm to
Diff: 3 do?
a. shut down
c. stay at 45 units
e. decrease price
Answer: D 29. Raiman’s Shoe Repair also produces custom-made shoes. When Mr. Raiman produces 12
Diff: 3 pair a week, the MC of the twelfth pair is $84, and the MR of that unit is $70. What
would you advise Mr. Raiman to do?
a. shut down
b. produce more custom-made shoes
c. stay at 12 pairs a week
d. produce fewer custom-made shoes
e. decrease price

Answer: B 30. Raiman’s Shoe Repair also produces custom-made shoes. When Mr. Raiman produces 12
Diff: 3 pair a week, the MC of the twelfth pair is $64, and the MR of that unit is $70. What
would you advise Mr. Raiman to do?
a. shut down
b. produce more custom-made shoes
c. stay at 12 pairs a week
d. produce fewer custom-made shoes
e. decrease price
Answer: D 31. Whatever else you learned about profit-maximization, you should have learned this:
Diff: 2 Maximum profit is obtained at the production level where
a. P = AC
b. TR = TC
c. MR = AR
d. MR = MC
e. TR = MR
Answer: B 32. It’s logical, it’s a rule of thumb, it’s an economic guideline: As long as MR > MC,
Diff: 4 and the firm responds by increasing the quantity it produces,
a. profit will eventually fall to zero
b. profit will increase
c. profit will decrease
d. profit will remain unchanged
e. the firm will minimize loss
Answer: C 33. It’s logical, it’s a rule of thumb, it’s an economic guideline: As long as MR > MC,
Diff: 4 and the firm responds by decreasing the quantity it produces,
a. profit will increase to infinity
e. loss will be minimized
Answer: C 34. It’s logical, it’s a rule of thumb, it’s an economic guideline: As long as MR < MC,
Diff: 4 and the firm responds by increasing the quantity it produces,
a. profit will equal zero
Answer: B 35. It’s logical, it’s a rule of thumb, it’s an economic guideline: As long as MR < MC,
Diff: 4 and the firm responds by decreasing the quantity it produces,
a. profit will equal zero
Answer: D 36. It’s logical, it’s a rule of thumb, it’s an economic guideline: By producing at a quantity
Diff: 3 where MR = MC,
a. profit is guaranteed
b. profit becomes zero
c. the firm incurs a loss
d. profit is maximized (or loss minimized)
e. the firm should increase quantity

Answer: A 37. Technically speaking, maximizing profit means finding the maximum difference between
Diff: 5 a. TR and TC
b. MR and MC
c. price and ATC
d. price and AR
e. ATC and MC
Answer: E 38. If Claeys, a candy-making firm that specializes in old-fashioned hard candies, chooses
Diff: 4 not to produce at a production level where its MR = MC, then it
a. is making as much profit as possible
b. will incur losses
c. cannot be earning a profit
d. should really shut down before it loses everything
e. is not earning maximum profit
Answer: D 39. If SnuggleTight, a pillow-making firm in Long Island, NY, incurs losses by producing
Diff: 5 where its MR = MC, then at least in the short run, it should
a. shut down
b. increase output
c. decrease output
d. remain at that output level only if P > AVC
e. remain at that output level only if P > ATC
Answer: D 40. There may be a different criterion used for the long run, but for the short run, a firm
Diff: 4 should shut down production if price is less than
a. ATC
b. AR
c. MC
d. AVC
e. AFC
Answer: C 41. Considering production decisions for only the short run, a firm producing where
Diff: 5 MC = MR should stop producing if
a. its losses are less than TFC
b. its losses equal TFC
c. its losses are greater than TFC
d. TR is less than TC
e. TR exceeds TVC
Answer: D 42. You’re called in as a consultant: Price is $24. At a production level of 200 units,
Diff: 3 MC = MR, AFC = $6, and AVC = $16. What do you advise this firm to do?
a. Increase output.
b. Decrease output.
c. Shut down operations.
d. Stay at 200 units; the firm is earning $400 profit.
e. Stay at 200 units; the firm is minimizing losses of $200.
Answer: C 43. You’re called in as a consultant: Price is $24. At a production level of 200 units,
Diff: 4 MC = MR, AFC = $6, and AVC = $25. What do you advise this firm to do?
a. Increase output.
b. Decrease output.
c. Shut down operations.
d. Stay at the current output; the firm is earning a profit of $1,400.
e. Stay at the current output; the firm is losing $1,400.

Exhibit I-4
$
ATC MC
4.00 MR
3.50
20 Quantity
Answer: A 44. In Exhibit I-4, if this firm is currently producing 20 units of output, this firm
Diff: 4 a. is at its profit-maximizing point
b. could increase profits by increasing output
c. could increase profits by decreasing output
d. should shut down
e. should decrease price
Answer: A 45. In Exhibit I-4, if this firm is currently producing 20 units of output, this firm
Diff: 3 a. is earning a profit of $10
b. is earning a profit of $.50
c. is losing $10
d. should shut down
e. is losing $.50
Answer: A 46. In Exhibit I-5 (on the following page), if this firm is currently producing 20 units of
Diff: 4 output, this firm
a. is at its profit-maximizing point
b. could increase profits by increasing output
c. could increase profits by decreasing output
d. should shut down
e. should decrease price
Answer: C 47. In Exhibit I-5, if this firm is currently producing 20 units of output, this firm
b. is losing $20
c. is earning a total profit of $60
d. should shut down
e. is earning a total profit of $3

Exhibit I-5
$
MC ATC
25 MR
22
20 Quantity
Answer: B 48. In Exhibit I-5, if this firm is currently producing 20 units of output, this firm
b. is earning a $3 profit on each item sold
c. is losing $3 on each item sold
d. should shut down
e. is earning a total profit of $3
Exhibit I-6
$
ATC
MC
AVC
35 MR
Quantity

Answer: D 49. In Exhibit I-6 (on the previous page), the price is fixed at $35. The firm is producing
Diff: 3 where MR = MC. What do you advise this firm to do in the short run?
a. Shut down.
b. Increase output.
c. Decrease output.
d. Stay at its current output.
e. Decrease price.
Answer: E 50. In Exhibit I-6, the price is fixed at $35. This firm is currently operating where MR = MC.
Diff: 4 Which of the following is true in the short run?
a. Price < AVC and this firm should shut down.
b. This firm is earning a profit of zero.
c. This firm could increase profits by increasing output.
d. Price > ATC and the firm is earning a positive profit.
e. Price > AVC, and the firm should stay at its current output.
Exhibit I-7
$
ATC
MC
AVC
14 MR
Quantity
Answer: D 51. In Exhibit I-7, the price is fixed at $14. This firm is currently operating where MR = MC.
Diff: 3 What do you advise this firm to do?
a. It should shut down.
b. It could increase profit by increasing output.
c. It could increase profit by decreasing output.
d. It should continue to operate at its current output.
e. It should decrease price.
Answer: A 52. It may be advisable for a firm to stay in business, even if it’s losing money,
Diff: 1 a. but only in the short run
b. but only if its profit covers the loss
c. but only in the long run
d. because “things may change”
e. when the owner has lots of money

Answer: D 53. If a firm produces where its MR equals its MC,

Diff: 2 a. TR is at a maximum, and TC is at a minimum
b. output is at a maximum
c. losses are at a maximum
d. profit is maximized or loss minimized
e. both TR and TC are at a maximum
Answer: C 54. Technically speaking, if price > AVC, then
Diff: 5 a. TR > TC
b. profit is positive
c. TR > TVC
d. profit is negative
e. the firm should shut down
Answer: C 55. If a firm is currently producing where MR = MC and price = $24, AVC = $22, and
Diff: 3 ATC = $26, then in the long run this firm should
a. continue to operate at a loss
b. earn a positive profit
c. go out of business
d. increase output
e. decrease price
Answer: D 56. There may be other goals an entrepreneur pursues, but the primary goal of the
Diff: 1 entrepreneur is to maximize
a. market share
b. production
c. the difference between price and cost
d. profit
e. size of the firm’s plant
Answer: C 57. An entrepreneur can be fairly certain about some factors associated with production, but
Diff: 3 is most likely to use guesswork or intuition to estimate
a. wage rate
b. monthly rent
c. price
d. labor productivity
e. interest rate
Answer: E 58. Suppose the firm’s total revenue is $4,000 and its total cost is $1,200. We know, then,
Diff: 4 that the firm
a. should produce more to maximize profit
b. should lower its price to maximize profit
c. should lower average total cost to maximize profit
d. should stay where it is because it’s maximizing profit
e. can’t determine what it should do with that incomplete information
Answer: B 59. If a potato farmer increases output and finds that total revenue increased less than total
Diff: 3 cost, then you know for sure that
a. profit had been maximized
b. the farmer should not have increased output
c. the farmer should produce even more output
d. the farmer suffers a loss
e. the farmer should have decreased output, not increased it

Answer: C 60. Economists believe that entrepreneurs, whether they can articulate their behavior or not,
Diff: 3 always think about ________, which explains their MC = MR profit-maximizing activity.
a. minimizing ATC
b. maximizing revenue
c. the consequences of producing the next unit
d. maximizing output
e. doing better than breaking even
Answer: A 61. If the price doesn’t change, no matter how much output is produced, the total revenue
Diff: 4 curve is a(n)
a. upward-sloping straight line
b. downward-sloping straight line
c. horizontal straight line
d. U-shaped curve
e. hill-shaped curve
Answer: C 62. When the price of a good is constant, marginal revenue is the same as
Diff: 3 a. total revenue
b. average total cost
c. price
d. quantity of output
e. profit per unit
Answer: A 63. Average revenue is another way of describing
Diff: 2 a. price
b. output
c. total revenue
d. profit
e. marginal cost
Answer: C 64. When price is constant, the average revenue curve is a(n)
Diff: 4 a. upward-sloping straight line
b. downward-sloping straight line
c. horizontal line
d. vertical line
e. point on the total revenue curve
Answer: E 65. If the price of parsley is $1, and the price remains unchanged no matter how much
Diff: 5 parsley is produced, then the AR curve
a. is an upward-sloping straight line
b. is a downward-sloping straight line
c. lies above the MR curve
d. lies below the MR curve
e. is a horizontal line
Answer: E 66. When the price curve is a horizontal line, it always coincides with all of the following
Diff: 4 except
a. MR
b. TR/Q
c. AR
d. change in total revenue divided by change in output
e. TC

Answer: D 67. A portrait photographer produces packages of 100 photos. If sales increase from 600 to
Diff: 3 700 packages, total revenue increases from $1,200 to $1,400. The marginal revenue per
photo of the 700th package is
a. $200
b. $100
c. $20
d. $2
e. $1
Answer: B 68. Which two curves tell you whether or not you’ve achieved maximum profit?
Diff: 3 a. P and MR
b. MR and MC
c. MC and TC
d. P and AVC
e. AVC and ATC
Exhibit I-8
Q P AVC ATC MC
0 $12 — — —
1 12 3 5 5
2 12 5 6 7
3 12 7.3 8 12
4 12 9.5 10 16
Answer: C 69. In Exhibit I-8, when the firm produces a quantity of 2, its total revenue is
Diff: 1 a. $2
b. $12
c. $24
d. $10
e. $14
Answer: B 70. If you create an MR column for Exhibit I-8, it will be the same as which column?
Diff: 4 a. Q
b. P
c. AVC
d. ATC
e. MC
Answer: D 71. In Exhibit I-8, what quantity would you produce to maximize profit?
Diff: 4 a. 0
b. 1
c. 2
d. 3
e. 4
Answer: D 72. In Exhibit I-8, the maximum profit is
Diff: 4 a. $36
b. $24
c. $20
d. $12
e. $8

Answer: C 73. Suppose you’re producing designer clothes for Barbie dolls. You’re producing 100 units
Diff: 3 and discover that the MR for the 100th unit is $50 while the MC of the 100th unit is $45.
If you’re in the short run, it’s a signal for you to
a. shut down
b. stay where you are because you’re making profit on that unit
c. increase production beyond 100 units
d. produce less than 100 units
e. it’s no signal because price data is unknown
Answer: E 74. If ABC Printing produces 100 calendars, and the MR of the 100th is $5 and the MC is $3,
Diff: 4 then the firm is
a. maximizing profit
b. producing too many calendars
c. making a $200 profit
d. making a $200 loss
e. producing too few calendars
Answer: A 75. The fundamental rule of profit maximization is for the firm to produce where
Diff: 3 a. MR = MC
b. ATC is minimized
c. quantity of output is maximized
d. it is most efficient
e. total revenue is maximized
Answer: B 76. The MR = MC approach to profit maximization means that a firm should produce until
Diff: 4 a. marginal revenue equals zero
b. additional profit equals zero
c. marginal cost becomes negative
d. marginal revenue equals price
e. price equals average total cost
Answer: D 77. According to the text, Israelis living on a kibbutz in Israel
Diff: 3 a. leave the economic decisions to the economists on the kibbutz
b. are adverse to profit-maximizing behavior
c. shifted from manufacturing to farming in the 1960s
d. behave according to the MR = MC rule
e. act communally so do not let prices affect their decisions
Answer: C 78. According to the text, on a kibbutz in Israel
Diff: 3 a. farmers produce oranges no matter what the price
b. members are not profit maximizers
c. there is no link between an individual’s effort and reward
d. universal equality is seen as unrealistic
e. high-tech manufacturing is not feasible
Answer: C 79. A sandwich shop owner has the following information: P = MR = $4, ATC = $2,
Diff: 4 AVC = $1, MC = 4, and Q = 500. From this, she can determine
a. her profits are not being maximized
b. she has earned zero economic profits
c. she has earned economic profits of $1,000
d. she has earned economic profits of $1,500
e. she should sell fewer sandwiches

Answer: B 80. Jerome, the florist, sold 500 bridesmaid’s bouquets in June. He estimates his costs that
Diff: 4 month were ATC = $10, AVC = $6, and MC = $9. If he sold each bouquet at the constant
market price of $9, Jerome
a. made an economic profit of $500
b. made a loss of $500
c. made an economic profit of $1,500
d. made a loss of $1,500
e. should have shut down in June
Answer: B 81. Consider a firm with the following cost information: ATC = $15, AVC = $12, and
Diff: 4 MC = $14. If we know that this firm has decided to produce Q = 20 by following the rule
to maximize profits or minimize losses, then the price of the output is
a. $12
b. $14
c. $15
d. $20
e. indeterminate from the information given
Answer: D 82. Consider a firm with the following cost and revenue information: ATC = $8, AVC = $7,
Diff: 4 and MR = MC = $6. If the firm produces Q = 60 in the short run, it
a. is minimizing losses
b. makes a total loss of $60
c. should produce more output
d. is making a mistake and should shut down
e. is maximizing total profit
Answer: C 83. Consider a firm with the following cost and revenue information: ATC = $20,
Diff: 3 AVC = $10, and P = MR = $30. If the firm follows the rule to maximize profits, its
output level is 3. Therefore MC equals
a. $20
b. $10
c. $30
d. $90
e. $3
Answer: A 84. The entrepreneur will typically have the most difficulty controlling
Diff: 2 a. price
b. average total cost
c. average variable cost
d. marginal cost
e. total cost
Answer: C 85. If the price of a product falls below average total cost in the short run, the firm
Diff: 4 a. has an economic profit
b. cannot cover total fixed costs
c. experiences a loss
d. must always shut down
e. should expand output until MR = MC
Answer: E 86. In Exhibit I-9 (on the following page), the profit-maximizing output level at the price of
Diff: 3 $8 is
a. 0
b. 4
c. 7
d. 8
e. 10

Cost,
Exhibit I-9
Revenues MC
($)
8 P = MR = 8
ATC
7
5 P = MR = 5
4 AVC
2 P = MR = 2
0 4 7 8 10 Quantity
Answer: D 87. In Exhibit I-9, the maximum profit at the price of $8 is

Diff: 3 a. $80
b. $69
c. $30
d. $20
e. $10
Answer: E 88. In Exhibit I-9, when the price is $5, the firm
Diff: 4 a. is making an economic profit of $21
b. should produce output equal to 10
c. is breaking even
d. should shut down
e. should produce output equal to 7
Answer: A 89. In Exhibit I-9, when the price is $2, the profit-maximizing (or loss-minimizing) firm
Diff: 4 a. should shut down and produce zero
b. should produce output equal to 4
c. is making an economic profit of $8
d. should try to produce more output
e. has total revenue equal to $20
Answer: C 90. In Exhibit I-9, when the price rises from $5 to $8, the profit-maximizing (or loss-
Diff: 3 minimizing) firm goes from making a
a. loss to making a smaller loss
b. loss to making a larger loss
c. loss to making a profit
d. profit to making a loss
e. profit to making a larger profit
Answer: A 91. If a firm shuts down in the short run, it will
Diff: 2 a. incur losses equal to its fixed costs
b. produce at the output level where MR = MC
c. reduce its losses to zero
d. do this because P > AVC
e. have total revenue greater than total fixed costs

Answer: B 92. Suppose the price of a product is less than its average variable cost. When the firm’s
Diff: 3 fixed obligations are completely ended, it will now most likely
a. make an economic profit
b. go out of business
c. expand to a bigger operation
d. continue to be shut down
e. break even
Answer: A 93. If price equals average total cost, then total revenue
Diff: 3 a. equals total cost
b. equals total fixed cost
c. equals total variable cost
d. is greater than total cost
e. equals marginal revenue
Answer: E 94. If price is greater than average variable cost, then the firm
Diff: 4 a. should cease production
b. earns economic profits
c. just breaks even
d. makes an economic loss
e. may make either an economic profit or loss
Answer: A 95. When a business finds its obligations are ended,
Diff: 3 a. all costs are variable costs
b. this is the short run
c. the market price of the output rises
d. the marginal cost curve shifts up
e. it may have to continue operations to minimize losses
Answer: B 96. A doorknob manufacturer sells 400 doorknobs at a price of $10 each. It has total costs of
Diff: 4 $4,500, of which $700 are fixed costs. This means the firm
a. has an economic profit of $500
b. should produce in the short run at a loss
c. should shut down in the short run
d. has total variable costs of $500
e. has price less than average variable cost
Answer: E 97. A custom paper company finds that when the price of paper is $5, its total revenues are
Diff: 5 $60,000. Its total costs are $70,000, of which $57,000 are variable costs. From this we
can infer
a. the firm sells 14,000 units of paper
b. economic profit is $10,000
c. the firm should shut down in the short run
d. total fixed costs are $3,000
e. price is greater than average variable cost
Answer: C 98. The neighborhood ice cream shop finds that when it charges $3 per ice cream cone, its
Diff: 2 total revenues are $90,000. It has total variable costs of $30,000 and total fixed costs of
$40,000. From this we can infer the
a. shop should be moved because the rent is too high
b. price is less than average total cost
c. economic profits are $20,000
d. shop will be closed in the long run
e. shop sells 10,000 ice cream cones

Answer: A 99. If a firm is operating at a loss in the short run and finds that its price is greater than
Diff: 5 average variable cost, then in the short run
a. it should produce where MR = MC
b. it should produce zero output
c. it should go out of business
d. total revenue is less than total variable costs
e. total revenue is greater than total costs
Answer: D 100. Who conducted the study in the 1940s that surveyed entrepreneurs to determine whether
Diff: 3 they used marginal analysis in choosing their production levels?
a. Milton Friedman
b. Fritz Machlup
c. Michael Kalecki
d. Richard Lester
e. R. L. Hall
Answer: B 101. The Lester-Machlup controversy applies to whether or not firms
Diff: 4 a. choose the correct plant size
b. use marginal analysis to choose output levels
c. correctly calculate their economic profits and losses
d. engage in wasteful advertising campaigns
e. pollute the environment
Answer: C 102. The controversy about whether entrepreneurs should be judged according to what they do
Diff: 3 or say originated between
a. Friedman and Hopkins
b. Berle and Means
c. Lester and Machlup
d. Baumol and Galbraith
e. Smith and Thurow
Answer: C 103. Who believes that marginal analysis provides the best model of a firm’s behavior?
Diff: 3 a. William Baumol
b. John K. Galbraith
c. Milton Friedman
d. Richard Lester
e. Lester Thurow
Answer: B 104. The author of the New Industrial State, who believes that managerial bureaucracy
Diff: 2 controls corporate goals and behavior, is
a. William Baumol
b. John K. Galbraith
c. Milton Friedman
d. Richard Lester
e. Lester Thurow
Answer: D 105. John K. Galbraith and Lester Thurow both believe that the modern corporation
Diff: 2 a. follows the MR = MC rule
b. tries to minimize costs
c. hires too few managers
d. is run by managers for managers
e. serves the interests of stockholders

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In the effort to strengthen his Ministry Perceval persuaded Lord
Sidmouth to enter the Cabinet, but only on condition that the orders
should be left an open question. Sidmouth plainly said that he would
rather give up the orders than face an American war.[221] He also
asked that the license system should be renounced. Perceval replied
that this would be a greater sacrifice than if the licenses had never
been granted.[222] Lord Sidmouth was not a great man,—Canning
despised his abilities, and the Prince of Wales called him a
blockhead;[223] but he was, except Lord Castlereagh, the only ally to
be found, and Perceval accepted him on his own terms. The new
Cabinet at once took the American question in hand, and
Castlereagh then wrote his instructions of April 10 to Foster, making
use of Bassano’s report to justify England’s persistence in the
orders; but besides this despatch Castlereagh wrote another of the
same date, in which Sidmouth’s idea took shape. If the United States
would restore intercourse with Great Britain, the British government
would issue no more licenses and would resort to rigorous
blockades.[224] This great concession showed how rapidly Perceval
lost ground; but this was not yet all. April 21 the Prince Regent
issued his formal declaration that whenever the French government
should publish an authentic Act expressly and unconditionally
repealing the Berlin and Milan Decrees, the Orders in Council,
including that of Jan. 7, 1807, should be wholly and absolutely
revoked.
Had the United States at that moment been so fortunate as to
enjoy the services of Pinkney in London, or of any man whose
position and abilities raised him above the confusion of party politics,
he might have convinced them that war was unnecessary. The mere
threat was sufficient. Sidmouth’s entrance into the Cabinet showed
the change of current, and once Perceval began to give way, he
could not stop. Unfortunately the United States had no longer a
minister in England. In July, 1811, the President ordered Jonathan
Russell to London to act as chargé until a minister should be
appointed, which he added would be done as soon as Congress
met;[225] but he changed his mind and appointed no minister, while
Jonathan Russell, seeing that Perceval commanded a majority and
was determined to maintain his system, reported the situation as
hopeless.[226]
Brougham, without taking the precaution of giving Russell the
daily information he so much needed, devoted all his energies to
pressing the popular movement against the Orders in Council.
Petition after petition was hurried to Parliament, and almost every
petition caused a new debate. George Rose, who possessed an
unhappy bluntness, in conversation with a Birmingham committee
said that the two countries were like two men with their heads in
buckets of water, whose struggle was which of the two could hold out
longest before suffocation. The phrase was seized as a catchword,
and helped agitation. April 28 Lord Stanley, in the House, renewed
the motion for a committee on the petitions against the orders.
Perceval had been asked whether he would consent to the
committee, and had refused; but on consulting his followers he found
such symptoms of disaffection as obliged him to yield rather than
face a defeat. George Rose then announced, greatly against his will,
that as a matter of respect to the petitioners he would no longer
oppose their request; Castlereagh and Perceval, cautioning the
House that nothing need be expected from the investigation,
followed Rose; while Stephen, after denouncing as a foul libel the
charge that the orders had been invented to extend the commerce of
Great Britain, also yielded to the committee “as a negative good, and
to prevent misconstruction.”
Stimulated by the threatening news from America, Brougham
pressed with his utmost energy the victory he had won. The
committee immediately began its examination of witnesses, who
appeared from every quarter to prove that the Orders in Council and
the subsequent non-importation had ruined large branches of British
trade, and had lopped away a market that consumed British products
to the value of more than ten million pounds sterling a year. Perceval
and Stephen did their best to stem the tide, but were slowly
overborne, and seemed soon to struggle only for delay.
Then followed a melodramatic change. May 11, as the prime
minister entered the House to attend the investigation, persons
about the door heard the report of a pistol, and saw Spencer
Perceval fall forward shot through the heart. By the hand of a lunatic
moved only by imaginary personal motives, this minister, who
seemed in no way a tragical figure, became the victim of a tragedy
without example in modern English history; but although England
had never been in a situation more desperate, the true importance of
Spencer Perceval was far from great, and when he vanished in the
flash of a pistol from the stage where he seemed to fill the most
considerable part, he stood already on the verge of overthrow. His
death relieved England of a burden. Brougham would not allow his
inquiry to be suspended, and the premier’s assassination rather
concealed than revealed the defeat his system must have suffered.
During the negotiations which followed, in the midst of difficulties
in forming a new Ministry, Castlereagh received from Jonathan
Russell Napoleon’s clandestine Decree of Repeal. Brougham asked,
May 22, what construction was to be put by ministers on this paper.
Castlereagh replied that the decree was a trick disgraceful to any
civilized government, and contained nothing to satisfy the conditions
required by England. Apart from the subordinate detail that his view
of the decree was correct, his remarks meant nothing. The alarm
caused by news that Congress had imposed an embargo as the last
step before war, the annoyance created by John Henry’s revelations
and Castlereagh’s lame defence, the weight of evidence pressing on
Parliament against the Orders in Council, the absence of a strong or
permanent Ministry,—these influences, gaining from day to day,
forced the conviction that a change of system must take place. June
8 Lord Liverpool announced that he had formed an Administration,
and would deal in due course with the Orders in Council. June 16
Brougham made his motion for a repeal of the orders. When he
began his speech he did not know what part the new Ministry would
take, but while he unfolded his long and luminous argument he
noticed that James Stephen failed to appear in the House. This
absence could mean only that Stephen had been deserted by
ministers; and doubt ceased when Brougham and Baring ended, for
then Lord Castlereagh—after Perceval’s death the leader of the
House—rose and awkwardly announced that the Government,
though till within three or four days unable to deliberate on the
subject, had decided to suspend immediately the Orders in Council.
Thus ended the long struggle waged for five years by the United
States against the most illiberal Government known in England
within modern times. Never since the Definitive Treaty of Peace had
America won so complete a triumph, for the surrender lacked on
England’s part no element of defeat. Canning never ceased taunting
the new Ministry with their want of courage in yielding without a
struggle. The press submitted with bad grace to the necessity of
holding its tongue. Every one knew that the danger, already almost a
certainty, of an American war chiefly caused the sudden and silent
surrender, and that the Ministry like the people shrank from facing
the consequences of their own folly. Every one cried that England
should not suffer herself to be provoked by the irritating conduct of
America; and at a moment when every word and act of the American
government announced war in the rudest terms, not a voice was
heard in England for accepting the challenge, nor was a musket
made ready for defence. The new Ministry thought the war likely to
drive them from office, for they were even weaker than when
Spencer Perceval led them. The “Times” of June 17 declared that
whatever might be the necessity of defending British rights by an
American war, yet it would be the most unpopular war ever known,
because every one would say that with happier talents it might have
been avoided. “Indeed,” it added, “every one is so declaring at the
present moment; so that we who have ever been the most strenuous
advocates of the British cause in this dispute are really overwhelmed
by the general clamor.” Bitter as the mortification was, the headlong
abandonment of the Orders in Council called out reproaches only
against the ministers who originally adopted them. “We are most
surprised,” said the “Times” of June 18, “that such acts could ever
have received the sanction of the Ministry when so little was urged in
their defence.”
Such concessions were commonly the result rather than the
prelude of war; they were not unlike those by which Talleyrand
succeeded, in 1799, in restoring friendly relations between France
and America. Three months earlier they would have answered their
purpose; but the English were a slow and stubborn race. Perhaps
that they should have repealed the orders at all was more surprising
than that they should have waited five years; but although they acted
more quickly and decidedly than was their custom, Spencer Perceval
lived three months too long. The Orders in Council were abandoned
at Westminster June 17; within twenty-four hours at Washington war
was declared; and forty-eight hours later Napoleon, about to enter
Russia, issued the first bulletin of his Grand Army.
CHAPTER XIV.
For civil affairs Americans were more or less trained; but they
had ignored war, and had shown no capacity in their treatment of
military matters. Their little army was not well organized or equipped;
its civil administration was more imperfect than its military, and its
military condition could hardly have been worse. The ten old
regiments, with half-filled ranks, were scattered over an enormous
country on garrison service, from which they could not be safely
withdrawn; they had no experience, and no organization for a
campaign, while thirteen new regiments not yet raised were
expected to conquer Canada.
If the army in rank and file was insufficient, its commanding
officers supplied none of its wants. The senior major-general
appointed by President Madison in February, 1812, was Henry
Dearborn, who had retired in 1809 from President Jefferson’s
Cabinet into the Custom-House of Boston. Born in 1751, Dearborn at
the time of his nomination as major-general was in his sixty-second
year, and had never held a higher grade in the army than that of
deputy quartermaster-general in 1781, and colonel of a New
Hampshire regiment after active service in the Revolutionary War
had ended.
The other major-general appointed at the same time was Thomas
Pinckney, of South Carolina, who received command of the Southern
Department. Pinckney was a year older than Dearborn; his military
service was chiefly confined to the guerilla campaigns of Marion and
Sumter, and to staff duty as aide to General Gates in the Southern
campaign of 1780; he had been minister in England and Envoy
Extraordinary to Spain, where he negotiated the excellent treaty
known by his name; he had been also a Federalist member of
Congress in the stormy sessions from 1797 to 1801,—but none of
these services, distinguished as they were, seemed to explain his
appointment as major-general. Macon, whose opinions commonly
reflected those of the Southern people, was astonished at the
choice.
“The nomination of Thomas Pinckney for major-general,” he wrote,
[227] “is cause of grief to all men who wish proper men appointed; not
that he is a Federal or that he is not a gentleman, but because he is
thought not to possess the talents necessary to his station. I imagine
his nomination must have been produced through the means of P.
Hamilton, who is about as fit for his place as the Indian Prophet would
be for Emperor of Europe. I never was more at a loss to account for
any proceeding than the nomination of Pinckney to be major-general.”
Even the private report that Pinckney had become a Republican
did not reconcile Macon, whose belief that the “fighting secretaries”
would not do for real war became stronger than ever, although he
admitted that some of the military appointments were supposed to
be tolerably good.
Of the brigadier-generals the senior was James Wilkinson, born
in 1757, and fifty-five years old in 1812. Wilkinson had recently been
tried by court-martial on a variety of charges, beginning with that of
having been a pensioner of Spain and engaged in treasonable
conspiracy; then of being an accomplice of Aaron Burr; and finally,
insubordination, neglect of duty, wastefulness, and corruption. The
court acquitted him, and February 14 President Madison approved
the decision, but added an irritating reprimand. Yet in spite of
acquittal Wilkinson stood in the worst possible odor, and returned
what he considered his wrongs by bitter and contemptuous hatred
for the President and the Secretary of War.
The next brigadier was Wade Hampton, of South Carolina, who
entered the service in 1808, and was commissioned as brigadier in
1809. Born in 1754, he was fifty-seven years old, and though
understood to be a good officer, he had as yet enjoyed no
opportunity of distinguishing himself. Next in order came Joseph
Bloomfield of New Jersey, nominated as brigadier-general of the
regular army March 27, 1812; on the same day James Winchester,
of Tennessee, was named fourth brigadier; and April 8 William Hull,
of Massachusetts, was appointed fifth in rank. Bloomfield, a major in
the Revolutionary War, had been for the last ten years Governor of
New Jersey. Winchester, another old Revolutionary officer, originally
from Maryland, though mild, generous, and rich, was not the best
choice that might have been made from Tennessee. William Hull,
civil Governor of Michigan since 1805, was a third of the same class.
All were sixty years of age or thereabout, and none belonged to the
regular service, or had ever commanded a regiment in face of an
enemy.
Of the inferior appointments, almost as numerous as the
enlistments, little could be said. Among the officers of the regiment of
Light Artillery raised in 1808, after the “Chesapeake” alarm, was a
young captain named Winfield Scott, born near Petersburg, Virginia,
in 1786, and in the prime of his energies when at the age of twenty-
six he saw the chance of distinction before him. In after life Scott
described the condition of the service as he found it in 1808.
“The army of that day,” he said,[228] “including its general staff, the
three old and the nine new regiments, presented no pleasing aspect.
The old officers had very generally sunk into either sloth, ignorance, or
habits of intemperate drinking.... Many of the appointments were
positively bad, and a majority of the remainder indifferent. Party spirit
of that day knew no bounds, and of course was blind to policy.
Federalists were almost entirely excluded from selection, though great
numbers were eager for the field, and in New England and some other
States there were but very few educated Republicans; hence the
selections from those communities consisted mostly of coarse and
ignorant men. In the other States, where there was no lack of
educated men in the dominant party, the appointments consisted
generally of swaggerers, dependants, decayed gentlemen, and
others, ‘fit for nothing else,’ which always turned out utterly unfit for
any military purpose whatever.”
This account of the army of 1808 applied equally, said Scott, to
the appointments of 1812. Perhaps the country would have fared as
well without a regular army, by depending wholly on volunteers, and
allowing the States to choose general officers. In such a case
Andrew Jackson would have taken the place of James Winchester,
and William Hull would never have received an appointment from
Massachusetts.
No one in the government gave much thought to the military
dangers created by the war, yet these dangers seemed evident
enough to warrant keen anxiety. The sea-shore was nowhere
capable of defence; the Lakes were unguarded; the Indians of the
Northwestern Territory were already in arms, and known to be
waiting only a word from the Canadian governor-general; while the
whole country beyond the Wabash and Maumee rivers stood nearly
defenceless. At Detroit one hundred and twenty soldiers garrisoned
the old British fort; eighty-five men on the Maumee held Fort Wayne;
some fifty men guarded the new stockade called Fort Harrison, lately
built on the Wabash; and fifty-three men, beyond possibility of
rescue, were stationed at Fort Dearborn, or Chicago; finally, eighty-
eight men occupied the Island of Michillimackinaw in the straits
between Lake Huron and Lake Michigan. These were all the military
defences of a vast territory, which once lost would need another war
to regain; and these petty garrisons, with the settlers about them,
were certain, in the event of an ordinary mischance, to be scalped as
well as captured. The situation was little better in the South and
Southwest, where the Indians needed only the support of a British
army at New Orleans or Mobile to expel every American garrison
from the territory.
No serious preparations for war had yet been made when the war
began. In January, Congress voted ten new regiments of infantry,
two of artillery, and one of light dragoons; the recruiting began in
March, and in June the Secretary of War reported to Congress that
although no returns had been received from any of the recruiting
offices, yet considering the circumstances “the success which has
attended this service will be found to have equalled any reasonable
expectations.”[229] Eustis was in no way responsible for the failure of
the service, and had no need to volunteer an opinion as to the
reasonable expectations that Congress might entertain. Every one
knew that the enlistments fell far below expectation; but not the
enlistments alone showed torpor. In February, Congress authorized
the President to accept fifty thousand volunteers for one year’s
service. In June, the number of volunteers who had offered
themselves was even smaller than that of regular recruits. In April,
Congress authorized the President to call out one hundred thousand
State militia. In June, no one knew whether all the States would
regard the call, and still less whether the militia would serve beyond
the frontier. One week after declaring war, Congress fixed the war
establishment at twenty-five regiments of infantry, four of artillery, two
of dragoons, and one of riflemen,—making, with the engineers and
artificers, an army of thirty-six thousand seven hundred men; yet the
actual force under arms did not exceed ten thousand, of whom four
thousand were new recruits. Toward no part of the service did the
people show a sympathetic spirit before the war was declared; and
even where the war was most popular, as in Kentucky and
Tennessee, men showed themselves determined to fight in their own
way or not at all.
However inexperienced the Government might be, it could not
overlook the necessity of providing for one vital point. Detroit claimed
early attention, and received it. The dangers surrounding Detroit
were evident to any one who searched the map for that remote
settlement, within gunshot of British territory and surrounded by
hostile Indian tribes. The Governor of Michigan, William Hull, a
native of Connecticut, had done good service in the Revolutionary
War, but had reached the age of sixty years without a wish to resume
his military career. He preferred to remain in his civil post, leaving to
some officer of the army the charge of military operations; but he
came to Washington in February, 1812, and urged the Government
to take timely measures for holding the Indians in check. He advised
the President and Cabinet to increase the naval force on Lake Erie,
although he already had at Detroit an armed brig ready to launch,
which he thought sufficient to control the upper lakes. The subject
was discussed; but the delay necessary to create a fleet must have
risked, if it did not insure, the loss of the whole Northwestern
Territory, and the President necessarily decided to march first a force
to Detroit strong enough to secure the frontier, and, if possible, to
occupy the whole or part of the neighboring and friendly British
territory in Upper Canada. This decision Hull seems to have
suggested, for he wrote,[230] March 6, to Secretary Eustis,—
“A part of your army now recruiting may be as well supported and
disciplined at Detroit as at any other place. A force adequate to the
defence of that vulnerable point would prevent a war with the
savages, and probably induce the enemy to abandon the province of
Upper Canada without opposition. The naval force on the Lakes would
in that event fall into our possession, and we should obtain the
command of the waters without the expense of building such a force.”
This hazardous plan required energy in the American armies,
timely co-operation from Niagara if not from Lake Champlain, and,
most of all, assumed both incompetence and treason in the enemy.
Assuming that Hull would capture the British vessels on the Lakes,
the President made no further provision for a fleet; but, apparently to
provide for simultaneous measures against Lower Canada, the
Secretary of War sent to Boston for General Dearborn, who was to
command operations on Lake Ontario and the St. Lawrence River.
Dearborn hastened to Washington in February, where he remained
until the last of April. He submitted to the Secretary of War what was
called a plan of campaign,[231] recommending that a main army
should advance by way of Lake Champlain upon Montreal, while
three corps, composed chiefly of militia, should enter Canada from
Detroit, Niagara, and Sackett’s Harbor. Neither Dearborn, Hull,
Eustis, nor Madison settled the details of the plan or fixed the time of
the combined movement. They could not readily decide details
before Congress acted, and before the ranks of the army were filled.
While these matters were under discussion in March, the
President, unable to find an army officer fitted to command the force
ordered to Detroit, pressed Governor Hull to reconsider his refusal;
and Hull, yielding to the President’s wish, was appointed, April 8,
1812, brigadier-general of the United States army, and soon
afterward set out for Ohio. No further understanding had then been
reached between him and Dearborn, or Secretary Eustis, in regard
to the military movements of the coming campaign.
The force destined for Detroit consisted of three regiments of
Ohio militia under Colonels McArthur, Findlay, and Cass, a troop of
Ohio dragoons, and the Fourth Regiment of United States Infantry
which fought at Tippecanoe,—in all about sixteen hundred effective
men, besides a few volunteers. April 1 the militia were ordered to
rendezvous at Dayton, and there, May 25, Hull took command. June
1 they marched, and June 10 were joined at Urbana by the Fourth
Regiment. Detroit was nearly two hundred miles away, and the army
as it advanced was obliged to cut a road through the forest, to bridge
streams and construct causeways; but for such work the militia were
well fitted, and they made good progress. The energy with which the
march was conducted excited the surprise of the British authorities in
Canada,[232] and contrasted well with other military movements of
the year; but vigorous as it was it still lagged behind events. Hull had
moved only some seventy-five miles, when, June 26,[233] he
received from Secretary Eustis a despatch, forwarded by special
messenger from the Department, to warn him that war was close at
hand. “Circumstances have recently occurred,” wrote Secretary
Eustis, “which render it necessary you should pursue your march to
Detroit with all possible expedition. The highest confidence is
reposed in your discretion, zeal, and perseverance.”
THE
SEAT OF WAR ABOUT LAKE ERIE.
Engraved from a Map Published
by John Conrad.
Struthers & Co., Engr’s, N. Y.
The despatch, dated June 18, was sent by the secretary on the
morning of that day in anticipation of the vote taken in Congress a
few hours later.[234] Hull had every reason to understand its
meaning, for he expected to lead his army against the enemy. “In the
event of hostilities,” he had written June 24,[235] “I feel a confidence
that the force under my command will be superior to any which can
be opposed to it. It now exceeds two thousand rank and file.” On
receiving the secretary’s pressing orders Hull left his heavy camp-
equipage behind, and hurried his troops to the Miami, or Maumee,
River thirty-five miles away. There he arrived June 30, and there, to
save transportation, loading a schooner with his personal baggage,
his hospital stores, entrenching tools, and even a trunk containing
his instructions and the muster-rolls of his army, he despatched it,
July 1, up the Lake toward Detroit. He took for granted that he
should receive from his own government the first notice of war; yet
he knew that the steamboat from New York to Albany and the road
from Albany to Buffalo, which carried news to the British forces at
Malden, was also the regular mode of conveyance for Detroit; and
he had every reason to suspect that as his distance in time from
Washington was greater, he might learn of war first from actual
hostilities. Hull considered “there was no hazard” in sending his most
valuable papers past Malden;[236] but within four-and-twenty hours
he received a despatch from Secretary Eustis announcing the
declaration of war, and the same day his schooner was seized by the
British in passing Malden to Detroit.
This first disaster told the story of the campaign. The declaration
made at Washington June 18 was published by General Bloomfield
at New York June 20, and reached Montreal by express June 24; the
same day it reached the British Fort George on the Niagara River
and was sent forward to Malden, where it arrived June 30. The
despatch to Hull reached Buffalo two days later than the British
express, for it went by ordinary mail; from Cleveland it was
forwarded by express, June 28, by way of Sandusky, to Hull, whom it
reached at last, July 2, at Frenchtown on the river Raisin, forty miles
below Detroit.
The slowness of transportation was made conspicuous by
another incident. John Jacob Astor, being engaged in extensive
trade with the Northwestern Indians, for political reasons had been
encouraged by government. Anxious to save the large amount of
property exposed to capture, he not only obtained the earliest
intelligence of war, and warned his agents by expresses, but he also
asked and received from the Treasury orders[237] addressed to the
Collectors on the Lakes, directing them to accept and hold such
goods as might be brought from Astor’s trading-posts. The business
of the Treasury as well as that of Astor was better conducted than
that of the War Department. Gallatin’s letters reached Detroit before
Eustis’s despatch reached Hull; and this incident gave rise to a
charge of misconduct and even of treason against Gallatin himself.
[238]
Hull reached Detroit July 5. At that time the town contained about
eight hundred inhabitants within gunshot of the British shore. The fort
was a square enclosure of about two acres, surrounded by an
embankment, a dry ditch, and a double row of pickets. Although
capable of standing a siege, it did not command the river; its
supplies were insufficient for many weeks; it was two hundred miles
distant from support, and its only road of communication ran for sixty
miles along the edge of Lake Erie, where a British fleet on one side
and a horde of savages on the other could always make it
impassable. The widely scattered people of the territory, numbering
four or five thousand, promised to become a serious burden in case
of siege or investment. Hull knew in advance that in a military sense
Detroit was a trap.
July 9, four days after his arrival, Hull received orders from
Washington authorizing him to invade Canada:—
“Should the force under your command be equal to the enterprise,
consistent with the safety of your own post, you will take possession
of Malden, and extend your conquests as circumstances may justify.”
He replied immediately the same day:[239]—

“I am preparing boats, and shall pass the river in a few days. The
British have established a post directly opposite this place. I have
confidence in dislodging them, and of being in possession of the
opposite bank.... The British command the water and the savages. I
do not think the force here equal to the reduction of Amherstburg
(Malden); you therefore must not be too sanguine.”
Three days later, July 12, his army crossed the river. Not a gun
was fired. The British militia force retired behind the Canard River,
twelve miles below, while Hull and his army occupied Sandwich, and
were well received by the inhabitants.
Hull had many reasons for wishing to avoid a battle. From the
first he looked on the conquest of Canada as a result of his mere
appearance. He began by issuing a proclamation[240] intended to
win a peaceful conquest.
“You will be emancipated,” said the proclamation to the Canadians,
“from tyranny and oppression, and restored to the dignified station of
freemen.... I have a force which will break down all opposition, and
that force is but the vanguard of a much greater.... The United States
offer you peace, liberty, and security,—your choice lies between these
and war, slavery, or destruction. Choose then; but choose wisely.”...
This proclamation, dated July 12, was spread throughout the
province with no small effect, although it contained an apparently
unauthorized threat, that “no white man found fighting by the side of
an Indian will be taken prisoner; instant death will be his lot.” The
people of the western province were strongly American, and soon to
the number of three hundred and sixty-seven, including deserters
from the Malden garrison, sought protection in the American lines.
[241] July 19 Hull described the situation in very hopeful terms:[242]—
“The army is encamped directly opposite to Detroit. The camp is

entrenched. I am mounting the 24-pounders and making every
preparation for the siege of Malden. The British force, which in
numbers was superior to the American, including militia and Indians,
is daily diminishing. Fifty or sixty (of the militia) have deserted daily
since the American standard was displayed, and taken protection.
They are now reduced to less than one hundred. In a day or two I
expect the whole will desert. The Indian force is diminishing in the
same proportion. I have now a large council of ten or twelve nations
sitting at Brownstown, and I have no doubt but the result will be that
they will remain neutral. The brig ‘Adams’ was launched on the 4th of
July. I have removed her to Detroit under cover of the cannon, and
shall have her finished and armed as soon as possible. We shall then
have the command of the upper lakes.”
To these statements Hull added a warning, which carried at least
equal weight:—
“If you have not a force at Niagara, the whole force of the province
will be directed against this army.... It is all important that Niagara
should be invested. All our success will depend upon it.”
While Hull reached this position, July 19, he had a right to
presume that the Secretary of War and Major-General Dearborn
were straining every nerve to support him; but in order to understand
Hull’s situation, readers must know what Dearborn and Eustis were
doing. Dearborn’s movements, compared day by day with those of
Hull, show that after both officers left Washington in April to take
command of their forces, Hull reached Cincinnati May 10, while
Dearborn reached Albany May 3, and wrote, May 8, to Eustis that he
had fixed on a site to be purchased for a military station. “I shall
remain here until the erection of buildings is commenced.... The
recruiting seems going on very well where it has been commenced.
There are nearly three hundred recruits in this State.”[243] If
Dearborn was satisfied with three hundred men as the result of six
weeks’ recruiting in New York State in immediate prospect of a
desperate war, he was likely to take his own duties easily; and in
fact, after establishing his headquarters at Albany for a campaign
against Montreal, he wrote, May 21, to the Secretary announcing his
departure for Boston: “As the quartermaster-general arrived here this
day I hope to be relieved from my duties in that line, and shall set out
for Pittsfield, Springfield, and Boston; and shall return here as soon
as possible after making the necessary arrangements at those
places.”
Dearborn reached Boston May 26, the day after Hull took
command at Dayton. May 29 he wrote again to Eustis: “I have been
here three days.... There are about three hundred recruits in and
near this town.... Shall return to Albany within a few days.” Dearborn
found business accumulate on his hands. The task of arranging the
coast defences absorbed his mind. He forgot the passage of time,
and while still struggling with questions of gunboats, garrisons, field-
pieces, and enlistments he was surprised, June 22, by receiving the
declaration of war. Actual war threw still more labor and anxiety upon
him. The State of Massachusetts behaved as ill as possible.
“Nothing but their fears,” he wrote,[244] “will prevent their going all
lengths.” More used to politics than to war, Dearborn for the time
took no thought of military movements.
Madison and Eustis seemed at first satisfied with this mode of
conducting the campaign. June 24 Eustis ordered Hull to invade
West Canada, and extend his conquests as far as practicable. Not
until June 26 did he write to Dearborn,[245]—
“Having made the necessary arrangements for the defence of the
sea-coast, it is the wish of the President that you should repair to
Albany and prepare the force to be collected at that place for actual
service. It is understood that being possessed of a full view of the
intentions of Government, and being also acquainted with the
disposition of the force under your command, you will take your own
time and give the necessary orders to the officers on the sea-coast. It
is altogether uncertain at what time General Hull may deem it
expedient to commence offensive operations. The preparations it is
presumed will be made to move in a direction for Niagara, Kingston,
and Montreal. On your arrival at Albany you will be able to form an
opinion of the time required to prepare the troops for action.”
Such orders as those of June 24 to Hull, and of June 26 to
Dearborn, passed beyond bounds of ordinary incapacity, and
approached the line of culpable neglect. Hull was to move when he
liked, and Dearborn was to take his own time at Boston before
beginning to organize his army. Yet the letter to Dearborn was less
surprising than Dearborn’s reply. The major-general in charge of
operations against Montreal, Kingston, and Niagara should have
been able to warn his civil superior of the risks incurred in allowing
Hull to make an unsupported movement from an isolated base such
as he knew Detroit to be; but no thought of Hull found place in
Dearborn’s mind. July 1 he wrote:[246]—
“There has been nothing yet done in New England that indicates
an actual state of war, but every means that can be devised by the
Tories is in operation to depress the spirits of the country. Hence the
necessity of every exertion on the part of the Government for carrying
into effect the necessary measures for defence or offence. We ought
to have gunboats in every harbor on the coast. Many places will have
no other protection, and all require their aid. I shall have doubts as to
the propriety of my leaving this place until I receive your particular
directions after you shall have received my letter.”
Dearborn complained with reason of the difficulties that
surrounded him. Had Congress acted promptly, a large body of
volunteers would have been already engaged, general officers would
have been appointed and ready for service, whereas no general
officer except himself was yet at any post north of New York city.
Every day he received from every quarter complaints of want of men,
clothing, and supplies; but his remaining at Boston to watch the
conduct of the State government was so little likely to overcome
these difficulties that at last it made an unfavorable impression on
the Secretary, who wrote, July 9, a more decided order from
Washington:[247]—
“The period has arrived when your services are required at Albany,
and I am instructed by the President to direct, that, having made
arrangements for placing the works on the sea-coast in the best state
of defence your means will permit, ... you will then order all the
recruits not otherwise disposed of to march immediately to Albany, or
some station on Lake Champlain, to be organized for the invasion of
Canada.”
With this official letter Eustis sent a private letter[248] of the same
date, explaining the reason for his order:—
“If ... we divide, distribute, and render inefficient the force
authorized by law, we play the game of the enemy within and without.
District among the field-officers the seaboard!... Go to Albany or the
Lake! The troops shall come to you as fast as the season will admit,
and the blow must be struck. Congress must not meet without a
victory to announce to them.”
Dearborn at Boston replied to these orders, July 13,[249] a few

hours after Hull’s army, six hundred miles away, crossed the Detroit
River into Canada and challenged the whole British force on the
lakes.
“For some time past I have been in a very unpleasant situation,
being at a loss to determine whether or not I ought to leave the sea-
coast. As soon as war was declared [June 18] I was desirous of
repairing to Albany, but was prevented by your letters of May 20 and
June 12, and since that time by the extraordinary management of
some of the governors in this quarter. On the receipt of your letter of
June 26 I concluded to set out in three or four days for Albany, but the
remarks in your letter of the 1st inst. prevented me. But having waited
for more explicit directions until I begin to fear that I may be censured
for not moving, and having taken such measures as circumstances
would permit for the defence of the sea-coast, I have concluded to
leave this place for Albany before the end of the present week unless I
receive orders to remain.”

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Answer: F 13. Setting P = ATC allows us to calculate total profit or loss.

Maximizing Profit — 244

Answer: F 24. A firm will never operate at a loss.

Answer: T 27. ATC always exceeds AVC.

Answer: T 30. If MR > MC, a profit-maximizing firm should increase output.

Answer: T 32. Price = MR only if the price is fixed.

Maximizing Profit — 245

Maximizing Profit — 246

Maximizing Profit — 247

Answer: E 13. Total revenue is a term economists use to describe the

Price Quan tity

Maximizing Profit — 248

Unit Marginal Marginal

Maximizing Profit — 249

Maximizing Profit — 250

Maximizing Profit — 251

Maximizing Profit — 252

Maximizing Profit — 253

Maximizing Profit — 254

Maximizing Profit — 255

Answer: D 53. If a firm produces where its MR equals its MC,

Maximizing Profit — 256

Maximizing Profit — 257

Maximizing Profit — 258

Maximizing Profit — 259

Maximizing Profit — 260

Answer: D 87. In Exhibit I-9, the maximum profit at the price of $8 is

Maximizing Profit — 261

Maximizing Profit — 262

Maximizing Profit — 263

He replied immediately the same day:[239]—

“The army is encamped directly opposite to Detroit. The camp is

Dearborn at Boston replied to these orders, July 13,[249] a few

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