Question 1

Which of the following best describes a rational individual in microeconomics?

Accepted Answer

Someone who makes decisions based on weighing additional (marginal) benefits and costs.

Question 2

Suppose a car wash owner pays $$10 per car wash and 12 $$per hour to each worker. If hiring a 5th worker increases production from 20 to 24 cars per hour, what is the marginal benefit (MB) and marginal cost (MC) of hiring the 5th worker?

Accepted Answer

MB: $$40, MC: 12$$

Question 3

According to the law of diminishing marginal benefit, which statement is most accurate?

Accepted Answer

Marginal benefit decreases as more units are consumed.

Question 4

A gym offers a membership with unlimited visits. The first visit provides a benefit of $$20, the second 15$$, and the third $$10. If the cost per visit is 12$$, how many visits should a rational individual make?

Accepted Answer

2 visits

Question 5

Which of the following is an example of a sunk cost?

Accepted Answer

The $48 paid for initial car wash equipment that cannot be recovered.

Question 6

If the price per car wash increases from $$10 to 14$$, what effect does this have on the marginal benefit of hiring the 7th worker, assuming the worker can wash 1 additional car per hour?

Accepted Answer

Marginal benefit increases to $14.

Question 7

Which formula correctly represents the optimal decision rule in marginal analysis?

Accepted Answer

$$MB = MC$$

Question 8

A car wash owner is considering hiring a 6th worker. The 6th worker increases production from 24 to 26 cars per hour. If the price per car wash is $$10 and the wage per worker is 12$$, what is the net benefit of hiring the 6th worker?

Accepted Answer

$$8$$

Question 9

Why should sunk costs be ignored in rational decision making?

Accepted Answer

Because they cannot be recovered and do not affect additional benefits or costs.

Question 10

If a worker's productivity increases so that the 7th worker can wash 2 cars per hour instead of 1, and the price per car wash is $10, what is the new marginal benefit of hiring the 7th worker?

Accepted Answer

$$20$$

Question 11

Which of the following is NOT a characteristic of rational individuals according to microeconomic theory?

Accepted Answer

They ignore costs and benefits.

Question 12

A movie ticket costs $20. You already paid for the ticket but are deciding whether to go. What should you consider in your decision?

Accepted Answer

The additional benefit and cost of going to the movie.

Question 13

If the wage per worker increases from $$12 to 20$$, what is the marginal cost of hiring an additional worker?

Accepted Answer

$$20$$

Question 14

Which of the following best explains why preferences can change over time in economic decision making?

Accepted Answer

Because preferences are not absolute and can be influenced by experience.

Question 15

If the marginal benefit of hiring the 7th worker is $$10 and the marginal cost is 12$$, what should the car wash owner do?

Accepted Answer

Not hire the 7th worker.

Question 16

Which of the following is an example of how an assumption is used in economic analysis?

Accepted Answer

Assuming 'all else being equal' to isolate the effect of one variable.

Question 17

A car wash owner is considering hiring an 8th worker. The 8th worker increases production from 26 to 27 cars per hour. If the price per car wash is $$10 and the wage per worker is 12$$, what is the marginal net benefit of hiring the 8th worker?

Accepted Answer

$$-2$$

Question 18

Which of the following factors would NOT increase the optimal number of workers at the car wash?

Accepted Answer

Decrease in price per car wash.

Question 19

If the marginal benefit of an action is less than its marginal cost, what should a rational individual do?

Accepted Answer

Refrain from the action.

Question 20

Which equation represents the calculation of marginal benefit for hiring an additional worker at a car wash?

Accepted Answer

$$MB = 	ext{Additional cars washed} 	imes 	ext{Price per car wash}$$

Economic Decision Making: Marginal Analysis and Rationality – Study Notes

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