Q: A student is choosing between two apartments. Apartment X is $900/month with a 15-hour commute, and Apartment Y is $1,050/month with a 5-hour commute. If the opportunity cost of time is $20/hour, which apartment should the student choose?

Apartment Y, because the total cost is lower: $1,050 + (5 \times 20) = $1,150$ vs. $900 + (15 \times 20) = $1,200$.

Q: A commuter is considering two job offers. Job 1 pays $3,000/month and requires a 30-hour commute per month. Job 2 pays $2,800/month and requires a 10-hour commute per month. If the commuter values their time at $25/hour, which job offers the higher net benefit?

Job 1: $3,000 - (30 \times 25) = $2,250$; Job 2: $2,800 - (10 \times 25) = $2,550$. Job 2 is better.

Question 1

Which of the following best describes optimization in economics?

Accepted Answer

Selecting the best feasible option by comparing total net benefits across alternatives.

Question 2

Suppose you are deciding between two apartments. Apartment A costs $1,200/month and is a 10-hour commute per month, while Apartment B costs $1,000/month and is a 30-hour commute per month. If your opportunity cost of time is $15/hour, which apartment has the lower total cost?

Accepted Answer

Apartment A, with a total cost of $1,350/month, and Apartment B, with a total cost of $1,450/month. Therefore, Apartment A is optimal.

Question 3

Optimization using marginal analysis involves:

Accepted Answer

Comparing the change in net benefit when moving from one option to another.

Question 4

If the opportunity cost of your time increases from $10/hour to $15/hour, what is the likely effect on your optimal apartment choice, all else equal?

Accepted Answer

You will prefer apartments with shorter commutes, even if the rent is higher.

Question 5

Which formula correctly represents the total cost of renting an apartment, including commuting, if rent is $R$, commuting time per month is $T$, and the opportunity cost of time is $C$ per hour?

Accepted Answer

$Total\ Cost = R + T 	imes C$

Question 6

A student is choosing between two apartments. Apartment X is $900/month with a 15-hour commute, and Apartment Y is $1,050/month with a 5-hour commute. If the opportunity cost of time is $20/hour, which apartment should the student choose?

Accepted Answer

Apartment Y, because the total cost is lower: $1,050 + (5 	imes 20) = $1,150$ vs. $900 + (15 	imes 20) = $1,200$.

Question 7

Which of the following statements about optimization using total value and marginal analysis is correct?

Accepted Answer

Both methods give identical answers when applied correctly.

Question 8

Suppose you are indifferent between two apartments, but one offers a view you value at $30/month. If the rent and all other costs are equal, which apartment should you choose and why?

Accepted Answer

Choose the apartment with the view, because it increases your net benefit by $30/month.

Question 9

If moving from Apartment A to Apartment B increases your benefit by $40 but also increases your cost by $60, what is the marginal net benefit (MNB) of moving?

Accepted Answer

$MNB = 40 - 60 = -20$

Question 10

A commuter is considering two job offers. Job 1 pays $3,000/month and requires a 30-hour commute per month. Job 2 pays $2,800/month and requires a 10-hour commute per month. If the commuter values their time at $25/hour, which job offers the higher net benefit?

Accepted Answer

Job 1: $3,000 - (30 	imes 25) = $2,250$; Job 2: $2,800 - (10 	imes 25) = $2,550$. Job 2 is better.

Question 11

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

Accepted Answer

They always have perfect information.

Question 12

If the marginal cost (MC) of moving from Apartment A to Apartment B is negative, what does this imply?

Accepted Answer

Moving to Apartment B decreases your total cost.

Question 13

Suppose you value your time at $18/hour. You are considering two apartments: Apartment 1 is $1,100/month with a 12-hour commute, and Apartment 2 is $1,000/month with a 20-hour commute. What is the total cost of each, and which is optimal?

Accepted Answer

Apartment 1: $1,100 + (12 	imes 18) = $1,316$; Apartment 2: $1,000 + (20 	imes 18) = $1,360$. Apartment 1 is optimal.

Question 14

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

Accepted Answer

The optimal alternative is the one where moving away from it makes you worse off.

Question 15

A person is choosing between two apartments. East costs $950/month and has a view valued at $25/month. West also costs $950/month but is 30 minutes closer to the airport, and the person flies twice a month (4 trips). If the value of time is $20/hour, what is the net benefit of choosing East over West?

Accepted Answer

Net benefit = $25 - (2 	imes 1 	imes 20) = $25 - $40 = -$15$. West is optimal.

Question 16

If the marginal net benefit (MNB) of moving from Apartment A to Apartment B is positive, what should you do according to marginal analysis?

Accepted Answer

Move to Apartment B.

Question 17

Which of the following is a correct definition of marginal benefit (MB)?

Accepted Answer

The change in benefits when moving between alternatives.

Question 18

A person receives a raise, increasing their value of time from $20/hour to $23/hour. How does this affect their apartment choice if all else remains constant?

Accepted Answer

They will be more likely to choose an apartment with a shorter commute.

Optimization in Microeconomics: Choosing the Best Feasible Option

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