Question 1

Which of the following best describes the concept of optimization in economics?

Accepted Answer

Selecting the best feasible option that maximizes net benefit within given constraints.

Question 2

Suppose you are choosing between four apartments with the following total monthly costs: Very Close: $$1,230, Close: 1$$,190, Far: $$1,180, Very Far: 1$$,200. Which apartment should you choose according to total value optimization?

Accepted Answer

Far

Question 3

If your opportunity cost of time increases from $$10/hour to 15/$$hour, how does this affect your optimal apartment choice, assuming all else is constant?

Accepted Answer

You will choose an apartment closer to the city center.

Question 4

Which formula correctly represents the net benefit in total value optimization?

Accepted Answer

$$Net\ Benefit = Total\ Benefit - Total\ Cost$$

Question 5

A restaurant considers staying open an extra hour. The marginal cost is $$200 and the marginal revenue is 250. $$What should the restaurant do and by how much will profit change?

Accepted Answer

Stay open; profit increases by $50.

Question 6

Which of the following is NOT a reason why people may fail to optimize?

Accepted Answer

Unlimited resources

Question 7

If the marginal cost of eating a fourth slice of pizza is greater than the marginal benefit, what should you do according to marginal analysis?

Accepted Answer

Stop at three slices.

Question 8

Suppose you are deciding between three airports for a flight. The total costs (including time, taxi, and airfare) are: Closest: $$423, Middle: 361$$, Farthest: $347. Which airport should you choose?

Accepted Answer

Farthest

Question 9

Which of the following best describes marginal analysis?

Accepted Answer

Evaluating the additional benefit and cost of a one-unit change in activity.

Question 10

If the marginal total cost of moving from 'Close' to 'Far' apartment is negative, what does this imply?

Accepted Answer

Moving to 'Far' decreases your total cost.

Question 11

Which of the following is an example of an opportunity cost when deciding where to live?

Accepted Answer

The time you spend commuting that could be used for work or leisure.

Question 12

If the marginal revenue of staying open an extra hour is less than the marginal cost, what should a business do?

Accepted Answer

Close at the earlier time.

Question 13

Which of the following statements is TRUE regarding optimization using total value and marginal analysis?

Accepted Answer

They give identical answers for the optimal choice.

Question 14

In the context of apartment selection, what is the main effect of including the opportunity cost of time in your analysis?

Accepted Answer

It increases the total cost of apartments with longer commutes.

Question 15

Suppose the total cost curve for apartments shifts upward for all options. What could explain this change?

Accepted Answer

An increase in opportunity cost of time.

Question 16

Which of the following is the correct formula for calculating the marginal cost between two options?

Accepted Answer

$$Marginal\ Cost = Total\ Cost_{Option\ 2} - Total\ Cost_{Option\ 1}$$

Question 17

A student is deciding how many hours to study for an exam. The marginal benefit of studying an additional hour is $$20, and the marginal cost is 15. $$What should the student do?

Accepted Answer

Study the additional hour.

Question 18

Which of the following best illustrates the principle of optimization at the margin?

Accepted Answer

Making decisions by comparing the additional benefit and cost of a small change.

Question 19

If you are indifferent between two options, what does this imply about their net benefits?

Accepted Answer

The net benefits of both options are equal.

Question 20

Which of the following is a real-world example of a trade-off due to scarce resources?

Accepted Answer

Choosing between working extra hours or spending time with friends.

Chapter 3: Optimization – Doing the Best You Can

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