Question 1

The techniques of optimization using total value and optimization using marginal analysis ________.

Accepted Answer

A)  cannot be used to compare the same set of alternatives 
B)  compare only the costs and ignore the benefits of the alternatives 
C)  provide identical answers when comparing the same set of alternatives 
D)  may provide different answers when comparing the same set of alternatives

Question 2

In most cases,optimization using marginal analysis is faster and easier than optimization using total value because the former ________.

Accepted Answer

A)  involves fewer steps to arrive at a conclusion 
B)  uses simpler arithmetic tools in comparison to the latter 
C)  focuses only on the benefits of an option, ignoring all calculations involving costs 
D)  focuses only on the key differences between options and ignores things in common

Question 3

Optimization using marginal analysis analyzes ________.

Accepted Answer

A)  the total net benefits of different alternatives 
B)  only the costs of an alternative and not the benefits 
C)  the total net benefits of the alternative that looks the most attractive 
D)  the change in the net benefits resulting from a shift from one alternative to another

Question 4

Scenario: Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the number of hours per month it takes to commute to work from each apartment. Ryan's opportunity cost of time is $15 per hour.
 
-Refer to the scenario above.What is the opportunity cost of the commute to work per month if Ryan rents Apartment 2?

Accepted Answer

A)  $20 
B)  $150 
C)  $200 
D)  $300

Question 5

________ is the incremental cost generated by moving from one feasible alternative to the next feasible alternative.

Accepted Answer

A)  Total cost 
B)  Indirect cost 
C)  Marginal cost 
D)  Opportunity cost

Question 6

How does optimization using total value differ from optimization using marginal analysis? Assume that the city council has to choose one of the following three alternatives-setting up a school,setting up a hospital,and setting up a playground.The estimates of the expected cost and benefit of all three projects are shown in the following table.How does the city council arrive at the optimal choice if both the techniques of optimization are implemented? Do the results vary?

Accepted Answer

The answer of How does optimization using total value differ...

Question 7

Scenario: Assume that there are five apartments located at different distances from an individual's place of work-very close, close, far, very far, and extremely far. The individual makes his choice by studying the change in costs as he moves farther from his place of work. He has to choose between renting one of the five apartments. The movement from apartment Very Close to Close has a marginal cost of −$60, a movement from apartment Close to Far has a marginal cost of −$40, a movement from apartment Far to Very Far has a marginal cost of −$10, and a movement from apartment Very Far to Extremely Far has a marginal cost of $20.
-Refer to the scenario above.Which of the following shifts will increase the total cost?

Accepted Answer

A)  A shift from apartment Close to apartment Far 
B)  A shift from apartment Far to apartment Very Far 
C)  A shift from apartment Very Close to apartment Close 
D)  A shift from apartment Very Far to apartment Extremely Far

Question 8

Scenario: Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the number of hours per month it takes to commute to work from each apartment. Ryan's opportunity cost of time is $15 per hour.
 
-Refer to the scenario above.The total cost per month is the highest if Apartment ________ is rented.

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5

Question 9

Net benefits of an alternative equal ________.

Accepted Answer

A)  benefits minus costs 
B)  benefits divided by costs 
C)  the sum of benefits and costs 
D)  the product of benefits and costs

Question 10

The analysis of economic outcomes before and after some economic variable is changed is referred to as ________.

Accepted Answer

A)  normative economics 
B)  marginal study 
C)  empiricism 
D)  before and after comparisons

Question 11

Which of the following statements is true of marginal analysis?

Accepted Answer

A)  Marginal analysis is a tool used in optimization using total value. 
B)  Marginal analysis compares the consequences of doing one more step of something. 
C)  Marginal analysis of alternatives will mostly give an outcome different from optimization using total value. 
D)  Marginal analysis involves the calculation of the total net benefits of all the available alternatives.

Question 12

What are the steps involved in optimization using total value? If option A has a cost of $5 and provides a benefit of $8 and option B has a cost of $10 and provides a benefit of $15,which of the two projects is optimal?

Accepted Answer

The answer of What are the steps involved in optimization...

Question 13

Which of the following is an example of before and after comparisons?

Accepted Answer

A)  The estimation of the quantity demanded of a good when its price is $5 
B)  The estimation of the demand for a particular good when consumer income is $10 
C)  The estimation of the ideal number of workers a firm should hire when wage rate is $20 per hour 
D)  The estimation of the supply of a good when the wage rate of labor changes from $30 to $10 per hour

Question 14

Scenario: A firm wants to set up a factory. It has four different options. The rent of the factory in each of the four different locations and the time taken to transport the product from each location to the market is shown in the table below. The opportunity cost of time is $10 per hour.
 
-Refer to the scenario above.If the firm chooses factory Far over Close,what is its marginal opportunity cost of transporting products to the market?

Accepted Answer

A)  $100 
B)  −$200 
C)  $50 
D)  $150

Exam 3: Optimization: Doing the Best You Can