Exam 10: Decision Making by Individuals and Firms

Wendy sells ice-making machines. She can sell six per week at a price of $2,000 per machine. If she charges $2,100 per machine, she will sell only five per week. The marginal benefit of selling the sixth ice-making machine is:

Suppose the Chicago Cubs could rent out Wrigley Field (the field they play on) to local youth leagues for $11,000 per month. The $11,000 per month is the _____ cost of capital.

According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____.

Use the following to answer questions : -(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of Sweatshirts. The marginal benefit of producing the second sweatshirt is:

Marginal benefit:

Use the following to answer questions Figure: The Marginal Cost Curve -(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The total cost of mowing four lawns is approximately:

Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred _____ in _____ costs.

In general, when marginal benefit is greater than marginal cost, the decision maker should do _____ of the activity.

Use the following to answer questions : -(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor and assume that marginal cost is constant in the intervals of production. The marginal cost for pizza production:

Use the following to answer questions Scenario: Betty's Cookie Shop Betty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it. -(Scenario: Betty's Cookie Shop) Betty's implicit and explicit costs are equal to:

Use the following to answer questions : -(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of Sweatshirts. The marginal benefit of producing the fourth sweatshirt is:

Use the following to answer questions : -(Table: Marginal Analysis of Sweatshirt Production II) Look at the table Marginal Analysis of Sweatshirt Production II. The optimal quantity of sweatshirts to produce is:

For which of the following decisions would marginal analysis be relevant?

Use the following to answer questions Scenario: Accounting and Economic Profit Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000. -(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and Economic Profit. The implicit cost of capital for Wang's Wicker Furniture Store is:

The amount by which an additional unit of an activity increases total benefit is:

The amount by which an additional unit of an activity increases total cost is:

The _____ is the amount by which an additional unit of activity increases its total cost.

The amount by which an additional unit of an activity increases total cost is:

Joan loves sushi. Her first piece of sushi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sushi, how many pieces should she eat?

In economics, maximization of the total profit of an activity occurs when: