Question 1

Which of the following best describes the principle of marginal decision making in economics?

Accepted Answer

Making decisions by evaluating the additional cost and benefit of one more unit of an activity.

Question 2

Suppose you are willing to pay $$3.00 for three bites of ice cream and 2.75 $$for four bites. What is the marginal benefit of the fourth bite?

Accepted Answer

$$ \frac{2.75 - 2.50}{4 - 3} = 0.25 $$

Question 3

Which formula correctly calculates marginal cost?

Accepted Answer

$$ MC = \frac{\Delta TC}{\Delta Q} $$

Question 4

Bill is building a new home. He values the first 2,000 square feet at $$150 per square foot, and all additional square feet at 100 $$per square foot. The builder charges $$100 per square foot for the first 1,500 square feet and 125 $$per square foot for all additional square feet. For which range does Bill experience decreasing marginal benefit?

Accepted Answer

1,501–2,000 square feet

Question 5

If the marginal benefit of an activity is less than its marginal cost, what should a rational decision maker do?

Accepted Answer

Decrease the activity.

Question 6

Suppose the total cost of churning ice cream increases from $$10 to 21 $$when the quantity increases from 1 to 2 gallons. What is the marginal cost of the second gallon?

Accepted Answer

$$ \frac{21 - 10}{2 - 1} = 11 $$

Question 7

Which of the following best illustrates the concept of diminishing marginal benefit?

Accepted Answer

The first bite of ice cream tastes great, but each additional bite is less enjoyable.

Question 8

A student is deciding whether to study for one more hour. The benefit is a higher exam score, and the cost is less sleep. Which principle is the student applying?

Accepted Answer

Marginal decision making

Question 9

Suppose the marginal benefit of the 2,001st square foot of Bill's house is $$80, and the marginal cost is 125. $$What should Bill do?

Accepted Answer

Not add the 2,001st square foot.

Question 10

Which of the following is NOT a principle of rational decision making as described in the study materials?

Accepted Answer

People always maximize total benefits regardless of costs.

Question 11

If the total benefit of eating two bites of ice cream is $$2, and the total benefit of eating three bites is 2.50$$, what is the marginal benefit of the third bite?

Accepted Answer

$$ \frac{2.50 - 2.00}{3 - 2} = 0.50 $$

Question 12

Which scenario best demonstrates increasing marginal cost?

Accepted Answer

The first 100 yards of running are easy, but the next 100 yards are much harder.

Question 13

Suppose a builder charges $$100 per square foot for the first 1,500 square feet and 125 $$per square foot for all additional square feet. What is the marginal cost of the 1,501st square foot?

Accepted Answer

$125

Question 14

If a person is willing to pay $$1 for the first bite of ice cream, 2 $$for two bites, and $2.50 for three bites, what is the marginal benefit of the second bite?

Accepted Answer

$$ \frac{2 - 1}{2 - 1} = 1 $$

Question 15

Which of the following is an example of opportunity cost?

Accepted Answer

The value of the activity you give up to attend the concert.

Question 16

A rational decision maker will continue an activity as long as:

Accepted Answer

Marginal benefit is greater than marginal cost.

Question 17

If the total cost of churning ice cream increases from $$21 to 36 $$when the quantity increases from 2 to 3 gallons, what is the marginal cost of the third gallon?

Accepted Answer

$$ \frac{36 - 21}{3 - 2} = 15 $$

Question 18

Which of the following statements about self-interest is most consistent with economic theory?

Accepted Answer

People act in their own self-interest, which may include caring for others.

Question 19

Suppose Bill's marginal benefit for the first 1,500 square feet is $$150, and the marginal cost is 100. $$For the next 500 square feet, the marginal benefit is $$100 and the marginal cost is 125. $$What is the optimal house size for Bill?

Accepted Answer

2,000 square feet

Fundamentals of Marginal Decision Making in Economics

Study Guide - Practice Questions

Study Guide - Flashcards