Deck 11: Benefits, Costs, and Maximization

Question 1

Cost-benefit analysis:

A) applies only to business decisions.
B) cannot be used to evaluate opportunity costs.
C) occurs anytime an individual makes a rational decision.
D) requires that cost and benefits be quantified in dollars and cents.

Answer 1

occurs anytime an individual makes a rational decision.

Question 2

Which of the following statements is true?

A) The formal study of the balancing of costs and benefits is referred to as cost-benefit analysis.
B) Only economic decision making is based on the balancing of costs and benefits in order to maximize something.
C) It was not until the development of economics that people became aware of the costs and benefits of different actions.
D) All of the above.

Answer 2

The formal study of the balancing of costs and benefits is referred to as cost-benefit analysis.

Question 3

Cost-benefit analysis:

A) is a method for evaluating various actions in order to maximize the result of decision making.
B) can be applied to areas of human experience beyond those studied in economics and finance.
C) is helpful in evaluating business investment and production decisions and government expenditure decisions.
D) all of the above.

Answer 3

all of the above.

Question 4

The benefit to a person from an action or purchase is:

A) referred to as utility.
B) the amount of satisfaction received from the action or purchase.
C) highly subjective, and it is difficult for two people to compare the satisfaction each receives from the same action or purchase.
D) all of the above.

Question 5

The cost of a purchase or action measured in terms of a forgone alternative is:

A) zero for some purchases or actions.
B) the opportunity cost of the purchase or action.
C) always greater for poor individuals than for wealthy individuals.
D) not important for decisions made in planned economies since people have no choices in these economies.

Question 6

Opportunity costs:

A) are incurred in every activity an individual carries out.
B) apply only to individuals' spending and earning decisions.
C) are associated only with decisions involving money outlays.
D) cannot be evaluated since they are costs of alternatives that have been forgone, and therefore, no costs have actually been incurred.

Question 7

The marginal utility from consuming a good, service, or activity is the:

A) total satisfaction from consuming a certain amount of that item.
B) change in total satisfaction from consuming each additional unit of that item.
C) total satisfaction minus the opportunity cost from consuming a certain amount of that item.
D) total satisfaction from consuming a certain amount of that item divided by the number of units of the item consumed.

Question 8

The change in total satisfaction from consuming each additional unit of a good, service, or activity is:

A) total utility.
B) average utility.
C) adjusted utility.
D) marginal utility.

Question 9

Marginal utility is the:

A) satisfaction from the total amount of a good or service consumed.
B) average satisfaction from each unit of a good or service consumed.
C) change in total satisfaction from consuming an additional unit of a good or service.
D) difference between the satisfaction from consuming a good or service and its cost.

Question 10

Total utility is the:

A) satisfaction from each unit of a good or service consumed.
B) satisfaction from the total amount of a good or service consumed.
C) change in total satisfaction from consuming an additional unit of a good or service.
D) difference between the satisfaction from consuming a good or service and its cost.

Question 11

The satisfaction received from consuming a specified number of units of a good, service, or activity is:

A) net utility.
B) end utility.
C) total utility.
D) marginal utility.

Question 12

The table below shows the total utility from consuming one through four hamburgers. What is the marginal utility from the third hamburger consumed?

A) 4 points.
B) 10 points.
C) 16 points.
D) 46 points.

Question 13

The table below shows the marginal utilities from consuming one through four hamburgers. What is the total utility from consuming three hamburgers?

A) 10 points.
B) 14 points.
C) 24 points.
D) 42 points.

Question 14

The total utility from consuming different amounts of Good A is as follows.


-From the table we can conclude that marginal utility:

A) increases at first and then decreases.
B) decreases at first and then increases.
C) increases from one through four units consumed.
D) decreases from one through four units consumed.

Question 15

The total utility from consuming different amounts of Good A is as follows.


-According to the table, marginal utility equals total utility when the number of units consumed is:

A) one.
B) two.
C) three.
D) four.

Question 16

The total utility from consuming different amounts of Good A is as follows.


-The marginal utility of the third unit consumed is:

A) 500 points.
B) 666 points.
C) 1750 points.
D) 2000 points.

Question 17

The utilities from consuming different amounts of Good X are as follows.


-The total utility when one unit of Good X is consumed is:

A) 60 points.
B) 80 points.
C) 120 points.
D) zero points.

Question 18

The utilities from consuming different amounts of Good X are as follows.


-The marginal utility from consuming the second unit of Good X is:

A) 20 points.
B) 40 points.
C) 60 points.
D) 120 points.

Question 19

The utilities from consuming different amounts of Good X are as follows.


-If consumption were increased from two to three units:

A) total utility would decrease by 20 points.
B) total utility would increase to 140 points.
C) marginal utility would decrease by 60 points.
D) none of the above.

Question 20

The Law of Diminishing Marginal Utility states that as additional units of an item are consumed:

A) the total satisfaction from consuming that item falls.
B) individuals are willing to pay a higher price for the item.
C) each successive unit consumed adds more to total utility than was added by the previous units consumed.
D) beyond some point, each successive unit consumed adds less to total utility than was added by the previous unit consumed.

Question 21

According to the Law of Diminishing Marginal Utility:

A) total utility and marginal utility are unrelated.
B) total utility immediately begins to fall as successive units of a good are consumed.
C) beyond some point, the additional satisfaction from consuming the next unit of a good falls.
D) the additional satisfaction from consuming the second unit of a good is always less than the additional satisfaction from consuming the first unit.

Question 22

On the basis of the following table you can conclude that diminishing marginal utility:

A) sets in with the 2nd unit consumed.
B) sets in with the 3rd unit consumed.
C) sets in with the 4th unit consumed.
D) does not set in with any of the units consumed.

Question 23

Given the table below, diminishing marginal utility sets in with the:

A) 1st unit consumed.
B) 2nd unit consumed.
C) 3rd unit consumed.
D) 4th unit consumed.

Question 24

Given the table below, diminishing marginal utility sets in with the:

A) 1st unit consumed.
B) 2nd unit consumed.
C) 3rd unit consumed.
D) 4th unit consumed.

Question 25

Diminishing marginal utility is the decrease in:

A) total satisfaction when consuming one less unit of a good or service.
B) total satisfaction when consumption of a good or service falls to zero.
C) total satisfaction when consuming additional units of a good or service.
D) additional satisfaction when consuming additional units of a good or service.

Question 26

Marginal utility diminishes after a certain point due to:

A) the lower quality of the later goods or services consumed.
B) the availability of goods and services other than the one being consumed.
C) the fulfilling of the need or desire for the good or service as additional units are consumed.
D) all of the above.

Question 27

The total utility from consuming three units of a good is equal to:

A) the total utility from consuming two units plus the marginal utility from consuming the third unit.
B) the marginal utility from consuming the first unit, plus the marginal utility from consuming the second unit, plus the marginal utility from consuming the third unit.
C) both of the above.
D) none of the above.

Question 28

Suppose that you go to a movie and miss your favorite television show. The satisfaction you would have received from the television show is:

A) a money cost of going to the movie.
B) an explicit cost of going to the movie.
C) an opportunity cost of going to the movie.
D) not a cost of going to the movie since you could have stayed home if you wanted.

Question 29

The marginal cost and total cost of an activity are, respectively:

A) the opportunity cost of the activity, and the opportunity cost plus the financial cost of the activity.
B) the change in total cost from an additional unit of the activity, and the cost of a specified number of units of the activity.
C) the average cost of a specified number of units of the activity, and the value of all of the average costs of the activity added together.
D) none of the above.

Question 30

Marginal cost for a person consuming a good or service is the:

A) cost of the alternative forgone.
B) cost per unit of the good or service consumed.
C) total cost of consuming a given amount of the good or service.
D) change in total cost from consuming an additional unit of the good or service.

Question 31

Total cost for a person consuming a good or service is the:

A) cost of the alternative forgone.
B) cost per unit of the good or service consumed.
C) cost of consuming a given amount of the good or service.
D) change in cost from consuming an additional unit of the good or service.

Question 32

The table below shows the marginal cost, in utility points, to an individual from running. What is the total cost of running four miles?

A) 30 points.
B) 45 points.
C) 60 points.
D) 110 points.

Question 33

The table below shows the total cost, in utility points, to an individual from running. What is the marginal cost of running the third mile?

A) 20 points.
B) 30 points.
C) 35 points.
D) 50 points.

Question 34

-From the table we know the marginal cost of the first unit of the activity is:

A) $0.
B) $150.
C) $350.
D) none of the above.

Question 35

-From the table we know the total cost of two units of the activity is:

A) $150.
B) $350.
C) $500.
D) $700.

Question 36

-Marginal cost and total cost are equal for:

A) the 1st unit of the activity.
B) the 2nd unit of the activity.
C) the 3rd unit of the activity.
D) all units of the activity.

Question 37

-The total cost of two units of the activity is:

A) $200.
B) $225.
C) $250.
D) $350.

Question 38

-The total cost of three units of the activity is:

A) $250.
B) $400.
C) $450.
D) $600.

Question 39

-On the basis of the following table, the marginal cost of the second unit of activity is:

A) $300.
B) $400.
C) $700.
D) $1,000.

Question 40

The marginal cost to an individual of an activity, such as attending a concert, increases as additional hours are committed because:

A) firms charge proportionately more for longer activities.
B) each additional hour committed to the activity provides the individual with less utility.
C) the first hour committed comes at the expense of the least important alternative activity, and each hour thereafter requires forgoing more important alternative activities.
D) all of the above.

Question 41

Net benefit is that which results when:

A) total cost is subtracted from total benefit.
B) total benefit is divided by marginal benefit.
C) marginal benefit is subtracted from total benefit.
D) marginal cost is subtracted from marginal benefit.

Question 42

Net benefit is the:

A) total satisfaction from consuming a given amount of a good or service.
B) difference between the benefit and cost per unit of a good or service consumed.
C) difference between the total benefit and total cost from consuming a given amount of a good or service.
D) difference between the marginal benefit and marginal cost of the last unit of a good or service consumed.

Question 43

Net benefit is equal to:

A) total benefit - total cost.
B) total benefit - marginal benefit.
C) marginal benefit/marginal cost.
D) marginal benefit - marginal cost.

Question 44

An individual will maximize his or her net benefit from an activity by engaging in it to the point where:

A) total benefit equals total cost.
B) marginal benefit equals total benefit.
C) total benefit exceeds total cost by the greatest amount.
D) marginal benefit exceeds marginal cost by the greatest amount.

Question 45

One maximizes the net benefit from an activity by operating at the level where:

A) total cost equals total benefit.
B) total cost is lowest, regardless of total benefit.
C) total benefit is largest, regardless of total cost.
D) the positive difference between total benefit and total cost is the greatest.

Question 46

Which of the following does NOT occur when net benefit is maximized?

A) Marginal cost equals marginal benefit.
B) Total benefit exceeds total cost by the greatest amount.
C) The number that results when total cost is subtracted from total benefit is as large as possible.
D) The additional satisfaction from consuming one more unit of the activity exceeds the additional cost by the greatest amount.

Question 47

To maximize the net benefit from an action, an individual must engage in it to the point where:

A) total benefit equals total cost.
B) marginal benefit equals marginal cost.
C) total benefit exceeds net benefit by the greatest amount.
D) marginal benefit exceeds marginal cost by the greatest amount.

Question 48

An individual will maximize his or her satisfaction from an activity by engaging in it to the point where:

A) total cost equals total benefit.
B) marginal benefit equals total benefit.
C) marginal cost equals marginal benefit.
D) total cost equals total benefit minus marginal benefit.

Question 49

Net benefit is always increasing when:

A) total benefit equals total cost.
B) total benefit exceeds total cost.
C) marginal benefit equals marginal cost.
D) marginal benefit exceeds marginal cost.

Question 50

When there is no cost for a good or activity, net benefit is maximized where marginal benefit is:

A) zero.
B) maximized.
C) less than zero.
D) greater than zero.

Question 51

If using a good has no cost, net benefit will be maximized where total benefit is:

A) zero.
B) at its maximum.
C) equal to marginal utility.
D) none of the above.

Question 52

If marginal cost exceeds marginal benefit, we know that:

A) net benefit is falling.
B) total benefit is falling.
C) total cost exceeds total benefit.
D) net benefit will be maximized by increasing the level of activity.

Question 53

If an individual is carrying out an activity at the point where marginal benefit exceeds marginal cost by the greatest amount, we know that at that point:

A) marginal benefit is increasing.
B) net benefit exceeds zero by the greatest amount.
C) total benefit exceeds total cost by the greatest amount.
D) net benefit can be increased by increasing the amount of the activity.

Question 54

Oscar's marginal benefit exceeds his marginal cost by the greatest amount when he is consuming 10 units of a product. To maximize his net benefit, Oscar should:

A) stop consuming at 10 units.
B) consume more than 10 units of the product.
C) have stopped consuming the product before he reached 10 units.
D) not enough information to answer the question.

Question 55

Which of the following is NOT a net benefit maximizing rule?

A) Net benefit is maximized where marginal benefit equals marginal cost.
B) Net benefit is maximized where total benefit exceeds total cost by the greatest amount.
C) Net benefit is maximized where average benefit exceeds average cost by the greatest amount.
D) All of the above are net benefit maximizing rules.

Question 56

Net benefit is maximized where:

A) total benefit equals total cost.
B) marginal benefit equals marginal cost.
C) average benefit exceeds average cost by the greatest amount.
D) marginal benefit exceeds marginal cost by the greatest amount.

Question 57

Net benefit is maximized where:

A) total benefit equals total cost.
B) average benefit equals average cost.
C) total benefit exceeds total cost by the greatest amount.
D) marginal benefit exceeds marginal cost by the greatest amount.

Question 58

Which of the following statements is FALSE?

A) Net benefit is measured by subtracting total cost from total benefit.
B) As long as marginal benefit exceeds marginal cost, net benefit will rise.
C) Net benefit is maximized where total benefit exceeds total cost by the greatest amount.
D) Net benefit is maximized where marginal benefit exceeds marginal cost by the greatest amount.

Question 59

-Net benefit at three units of activity is:

A) 240 points.
B) 180 points.
C) 90 points.
D) -10 points.

Question 60

-At what level of activity is net benefit maximized, and what is net benefit at that level?

A) 1 unit, and net benefit equals 70 points.
B) 2 units, and net benefit equals 100 points.
C) 3 units, and net benefit equals 90 points.
D) 4 units, and net benefit equals 130 points.

Question 61

-In going from three to four units of activity, net benefit would:

A) increase because total benefit is increasing.
B) decrease because marginal benefit is decreasing.
C) increase because total benefit is greater than zero.
D) decrease because marginal cost is greater than marginal benefit.

Question 62

-Which of the following statements is true?

A) Total benefit and net benefit are both at their maximum at four units of activity.
B) Marginal benefit and net benefit are both at their maximum at one unit of activity.
C) Net benefit is less than zero at three and four units of activity because in both instances marginal benefit is less than marginal cost.
D) Net benefit is increasing when going from one to two units of activity, and decreasing when going from three to four units of activity.

Question 63

According to Application 11.1, "Do It Yourself:"

A) our life decisions really do come down to cost-benefit analysis.
B) understanding the balance between costs and benefits makes us smarter.
C) doing a particular activity might be seen as a benefit to one person and as a cost to another person.
D) all of the above.

Question 64

-In this figure, net benefit is maximized when the number of units of Good A consumed is:

A) 6.
B) 9.
C) 12.
D) either 6 or 12.

Question 65

-If, in this figure, ten units of Good A are consumed, then at this point marginal cost:

A) equals marginal benefit.
B) is less than marginal benefit.
C) is greater than marginal benefit.
D) may be equal to, less than, or greater than marginal benefit.

Question 66

-If, in this figure, twelve units of Good A are consumed, then at this point:

A) net benefit is zero.
B) marginal cost is equal to marginal benefit.
C) marginal cost minus marginal benefit is zero.
D) all of the above.

Question 67

-Based on this figure, marginal benefit is greater than marginal cost at:

A) 4 units of activity.
B) 6 units of activity.
C) 8 units of activity.
D) all of the above.

Question 68

-Based on this figure, marginal benefit equals marginal cost at:

A) 6 units of activity.
B) 9 units of activity.
C) 12 units of activity.
D) none of the above.

Question 69

-To maximize satisfaction this person should consume:

A) 2.5 units of Good X.
B) 6.0 units of Good X.
C) more than 6.0 units of Good X.
D) anywhere between 1.0 and 6.0 units of Good X.

Question 70

-From 0 to 5.0 units of Good X consumed, net benefit is:

A) increasing.
B) decreasing.
C) increasing and then decreasing.
D) decreasing and then increasing.

Question 71

-Based on this figure:

A) net benefit is zero at 6.0 units of Good X consumed.
B) total cost is at its minimum at 2.5 units of Good X consumed.
C) net benefit is at its maximum at 2.5 units of Good X consumed.
D) total benefit minus total cost is at its maximum at 6.0 units of Good X consumed.

Question 72

-Net benefit will increase and then decrease going from:

A) 1.0 to 4.0 units of Good X consumed.
B) 5.0 to 7.0 units of Good X consumed.
C) both of the above.
D) none of the above.

Question 73

-According to this figure, for 6 through 8 units of Good X consumed, marginal benefit is:

A) less than marginal cost, and total benefit is less than total cost.
B) less than marginal cost, and total benefit is greater than total cost.
C) greater than marginal cost, and total benefit is less than total cost.
D) greater than marginal cost, and total benefit is greater than total cost.

Question 74

-At what number of units of Good X consumed is marginal benefit minus marginal cost equal to zero?

A) 0.
B) 4.
C) 10.
D) Both 0 and 10.

Question 75

-Marginal benefit is greater than marginal cost, and total benefit is greater than total cost at:

A) 2 units of Good X consumed.
B) 6 units of Good X consumed.
C) 8 units of Good X consumed.
D) anywhere from 1 through 9 units of Good X consumed.

Question 76

Payments a business makes to acquire factors of production such as labor, raw materials, and machinery are:

A) explicit costs.
B) implicit costs.
C) depreciated costs.
D) nondiscretionary costs.

Question 77

Explicit costs are:

A) fixed costs.
B) variable costs.
C) opportunity costs.
D) payments made to acquire factors of production such as labor and machinery.

Question 78

Which of the following is an example of an explicit cost?

A) Wages paid to workers.
B) Payments for raw materials.
C) Equipment and maintenance expenses.
D) All of the above are explicit costs.

Question 79

Which of the following is NOT an explicit cost?

A) Wages paid to workers.
B) Payments for raw materials.
C) Rental payments for a building.
D) Income the business owner could have earned working for someone else.

Question 80

The costs of a business owner's factors of production that could be used in alternative income-earning activities:

A) are implicit costs.
B) are opportunity costs to the owner.
C) must be recovered if the owner is to keep the business in operation.
D) all of the above.