Question 1

Suppose a company is considering whether to produce an additional 1,000 units of its product. The marginal cost of producing these units is $$5,000, and the marginal revenue is 6$$,000. According to marginal analysis, what should the company do?

Accepted Answer

Produce the additional 1,000 units because $$6,000 \u003e 5$$,000.

Question 2

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The highest valued alternative that must be given up to engage in an activity.

Question 3

A government offers a tax credit to firms that invest in renewable energy. As a result, more firms invest in renewable energy. This is an example of:

Accepted Answer

People responding to economic incentives.

Question 4

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

Accepted Answer

Reduce the activity.

Question 5

Which of the following equations represents the condition for optimal decision-making in marginal analysis?

Accepted Answer

$$MB = MC$$

Question 6

A student-athlete can earn $600,000 playing professionally or return to college for another year. What is the opportunity cost of returning to college?

Accepted Answer

$$600,000$$

Question 7

Which of the following is a microeconomic issue?

Accepted Answer

How a firm decides the amount of labor to hire.

Question 8

Suppose the U.S. Postal Service is considering whether to continue a contract with Amazon. The marginal cost of the contract is $$1.50 per package, and the marginal revenue is 2.00 $$per package. What should the USPS do?

Accepted Answer

Continue the contract because marginal revenue exceeds marginal cost.

Question 9

Which of the following best defines the term 'marginal' as used in economics?

Accepted Answer

Additional or extra.

Question 10

A grocery store sells a bag of potatoes at a fixed price of $3.75. What is the term used by economists to describe the money received from the sale of an additional bag of potatoes?

Accepted Answer

Marginal revenue.

Question 11

Which of the following statements about rational decision-making is correct?

Accepted Answer

Rational decision-makers use all available information as they act to achieve their goals.

Question 12

When economists develop models to explain the choices people make, they generally assume that:

Accepted Answer

People are rational.

Question 13

Which of the following is an example of a positive economic statement?

Accepted Answer

"An increase in the minimum wage will lead to higher unemployment among teenagers."

Question 14

Suppose a cell phone manufacturer sells 20,000 phones per week and makes a profit of $$5,000 per week. The manager notes that producing and selling an additional 3,000 phones increased revenue by 6$$,000 and costs by $6,700. What is the marginal cost of producing the last 3,000 phones?

Accepted Answer

$$6,700$$

Question 15

Which of the following best describes the difference between microeconomics and macroeconomics?

Accepted Answer

Microeconomics examines individual markets, while macroeconomics examines the economy as a whole.

Question 16

Which of the following is NOT an assumption of economic models?

Accepted Answer

People always make correct decisions.

Question 17

Marginal analysis involves undertaking an activity:

Accepted Answer

Until its marginal benefits equal marginal costs.

Question 18

Which of the following is an example of a normative economic statement?

Accepted Answer

"The government should provide free healthcare to all citizens."

Question 19

If a firm is deciding whether to switch from frozen to fresh beef patties in all its restaurants, which economic principle should guide its decision?

Accepted Answer

Compare the total benefits and total costs of serving hamburgers made with fresh beef.

Question 20

Which of the following best describes the role of incentives in economics?

Accepted Answer

Incentives motivate people to act and explain changes in behavior.

Microeconomics Fundamentals: Marginal Analysis, Incentives, and Decision-Making

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