Question 1

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 is used to arrive at the optimum decision in the scenario?

Accepted Answer

A)  Optimization using total value 
B)  Before and after comparisons 
C)  Total net benefit approach 
D)  Principle of Optimization at the Margin

Question 2

Which of the following statements is true?

Accepted Answer

A)  Optimizers with the highest opportunity cost of time push up the rental price of apartments with the highest commute time. 
B)  Optimizers with the lowest opportunity cost of time push up the rental price of apartments with the lowest commute time. 
C)  As the rental prices of downtown apartments rise, only workers with the highest opportunity cost of time will be willing to rent them. 
D)  As the rental prices of downtown apartments rise, only workers with the lowest opportunity cost of time will be willing to rent them.

Question 3

If Project A has a cost of $2 and provides a benefit of $3 and Project B has a cost of $5 and provides a benefit of $8,which of the following statements is true?

Accepted Answer

A)  The net benefit of Project A is $5. 
B)  An individual can optimize by choosing Project B. 
C)  Project A has a higher net benefit than Project B. 
D)  A shift from Project A to Project B increases the net benefit by $1.

Question 4

What are the two techniques of achieving optimization? How do the techniques differ?

Accepted Answer

The answer of What are the two techniques of achieving...

Question 5

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 6

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 total cost incurred per month if Ryan rents Apartment 5?

Accepted Answer

A)  $2,150 
B)  $2,270 
C)  $2,400 
D)  $2,265

Question 7

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.What is the marginal rent cost if the firm chooses factory Far over factory Very Far?

Accepted Answer

A)  $40 
B)  $100 
C)  $150 
D)  −$150

Question 8

Shirley has to choose between a 2-day trip and a 3-day trip to Hollywood.The table below shows the expected benefit and cost for the different days.Apply both optimization using total value and optimization using marginal analysis to determine what Shirley's optimum decision should be.Does the decision differ with the techniques used? Which technique is faster to implement?

Accepted Answer

The answer of Shirley has to choose between a 2-day...

Question 9

To carry out an optimization analysis,________.

Accepted Answer

A)  different types of costs are measured in different units 
B)  only direct costs incurred in a project are to be estimated 
C)  only indirect costs incurred in a project are to be estimated 
D)  all costs are required to be converted to the same unit of measurement

Question 10

Which of the following statements identifies a difference between optimization using total value and optimization using marginal analysis?

Accepted Answer

A)  In most cases, optimization using total value is faster and easier than optimization using marginal analysis. 
B)  In many cases, optimization using marginal analysis is faster and easier than optimization using total value. 
C)  Optimization using marginal analysis compares only the cost involved in different alternatives, whereas optimization using total value compares the net benefit of different alternatives. 
D)  Optimization using marginal analysis compares the net benefit of different alternatives, whereas optimization using total value compares only the cost involved in different alternatives.

Question 11

Assume that an individual has to decide between a 2-day vacation and a 3-day vacation to the same place.If he uses optimization using marginal analysis,he will ________.

Accepted Answer

A)  only think about the net benefits of the extra day 
B)  compare the total net benefits of both alternatives 
C)  choose the 3-day vacation only if the costs incurred on the third day exceed the benefits he receives 
D)  spend more time to make a decision than he would had he used optimization using total value

Question 12

In choosing between apartments in two different locations,the marginal commuting cost is given by ________.

Accepted Answer

A)  the sum of the commuting cost from each apartment to the destination 
B)  the commuting cost from the apartment located closer to the destination 
C)  the commuting cost from the apartment located farther away from the destination 
D)  the difference between the commuting cost from two different apartments to the destination

Question 13

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.What is the marginal opportunity cost of transporting products to the market if the firm chooses factory Far over factory Very Far?

Accepted Answer

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

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

Question 15

In a marketplace,prices ________.

Accepted Answer

A)  are determined through auctions 
B)  are determined by politicians and regulators 
C)  act as incentives that allow for the efficient allocation of resources 
D)  act as a measure of value and do not affect the allocation of resources

Question 16

Refer to the table below.Given that an individual's opportunity cost of time is $30 per hour,which of the two apartments should she rent?

Accepted Answer

The answer of Refer to the table below.Given that an...

Question 17

Which of the following is an example of marginal analysis?

Accepted Answer

A)  To determine the optimal number of workers, a firm calculates the net benefits of hiring an extra worker. 
B)  To determine the optimal amount of fertilizer to be used, a farmer calculates the total benefits of using a given amount of fertilizer. 
C)  To choose the optimal apartment to rent, an individual estimates the net benefits of renting an apartment close to his place of work. 
D)  To determine the optimal output that a firm should sell, the manager calculates the total revenue earned by selling different levels of output.

Question 18

To calculate the ________ of an alternative,an individual needs to estimate ________ of the alternative.

Accepted Answer

A)  marginal benefit; the total cost 
B)  marginal cost; the total benefit 
C)  opportunity cost; the total benefit 
D)  net benefit; both the cost and the benefit

Question 19

Scenario: Sarah has to choose between renting a hotel room for 2 days and renting a hotel room for 3 days.
-Refer to the scenario above.Which of the following is true if Sarah is optimizing using total value?

Accepted Answer

A)  She will rent the hotel room for 3 days if the net benefit of staying for the third day is negative. 
B)  She will rent the hotel room for 3 days if the cost of staying for 2 days exceeds the cost of staying for 3 days. 
C)  She will rent the hotel room for 3 days if the net benefit of staying for 3 days exceeds the net benefit of staying for 2 days. 
D)  She will rent the hotel room for 3 days if the total benefit of staying for 3 days exceeds the total benefits of staying for 2 days.

Question 20

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 is the optimum choice?

Accepted Answer

A)  Apartment Very Close 
B)  Apartment Close 
C)  Apartment Far 
D)  Apartment Very Far

Exam 3: Optimization: Doing the Best You Can