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Introductory Economic Models

1

Increasing Marginal Opportunity Costs

4m

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2

Allocative Efficiency with Marginal Analysis

8m

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3

Problem

Chuggy wants to earn a high grade in his microeconomics class, but also loves going to parties and binge drinking. The first graph illustrates Chuggy’s PPF. The second graph denotes his MB curve from binge drinking.

What is Chuggy’s marginal cost of binge drinking if he parties for three hours a week?

A

1 percentage point

B

1.5 percentage points

C

2 percentage points

D

3 percentage points

E

5 percentage points

4

Problem

If Chuggy achieves allocative efficiency, how many hours does he spend binge drinking per week?

A

3 hours

B

4 hours

C

5 hours

D

6 hours

E

7 hours

5

Problem

What is Chuggy’s economics grade when he achieves allocative efficiency?

A

60 percent

B

70 percent

C

76 percent

D

82 percent

E

85 percent