Deck 3: Optimization: Doing the Best You Can

Question 1

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

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

Answer 1

provide identical answers when comparing the same set of alternatives

Question 2

John has to choose between a camping holiday and a holiday in Las Vegas.If he evaluates the total net benefit of both alternatives before coming to a decision,he is using the technique of ________.

A) marginal analysis
B) mean analysis
C) optimization using total value
D) optimization using marginal analysis

Answer 2

optimization using total value

Question 3

Optimization using total value calculates ________.

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

Answer 3

the total net benefits of different alternatives

Question 4

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

A) Both techniques consider only the costs of different alternatives.
B) Both techniques consider only the total benefits of different alternatives.
C) Both techniques evaluate the total net benefit of different alternatives to arrive at a decision.
D) Both techniques require the conversion of all costs and benefits into a common unit of measurement.

Question 5

Which of the following is NOT a step involved in optimization using total value?

A) Calculating the total net benefit of each alternative
B) Choosing the alternative with the highest net benefit
C) Converting all costs and benefits into a common value of measurement
D) Calculating the marginal consequences of moving between alternatives

Question 6

If the ________ minus the ________ is positive,Project A is chosen over Project B.

A) cost of Project A; cost of Project B
B) net benefit of Project B; net benefit of Project A
C) net benefit of Project A; net benefit of Project B
D) total benefit of Project B; total benefit of Project A

Question 7

When optimizing using total value,if the ________ exceed the ________,Project A is chosen over Project B.

A) net benefits of Project A; net benefits of Project B
B) total benefits of Project B; total benefits of Project A
C) marginal costs of Project A; marginal costs of Project B
D) marginal benefits of Project B; marginal benefits of Project A

Question 8

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

A) Optimization using total value compares only the costs of different alternatives, whereas optimization using marginal analysis compares only the benefits of different alternatives.
B) Optimization using total value compares only the benefits from different alternatives, whereas optimization using marginal analysis compares only the costs of different alternatives.
C) Optimization using total value calculates the net benefits of different alternatives, whereas optimization using marginal analysis calculates the change in net benefits when switching from one alternative to another.
D) Optimization using total value calculates the change in net benefits when switching from one alternative to another, whereas optimization using marginal analysis calculates the net benefits of different alternatives.

Question 9

Which of the following statements is true?

A) Marginal analysis is a key component in the process of optimization using total value.
B) Only direct costs are considered when the net benefits of the alternatives are calculated.
C) In both the techniques of optimization, all costs have to be converted to the same unit of measurement.
D) Optimization using total value calculates the change in net benefits when a person switches from one alternative to another.

Question 10

Net benefits of an alternative equal ________.

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

Question 11

Optimization using marginal analysis analyzes ________.

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 12

Making choices by selecting the best feasible option,given the available information,is referred to as ________.

A) delegation
B) imposition
C) actualization
D) optimization

Question 13

Both optimization using total value and optimization using marginal analysis ________.

A) consider only the benefits from different alternatives
B) consider only the costs incurred in different alternatives
C) provide identical answers when comparing two alternatives
D) require the calculation of the change in net benefits when switching from one alternative to another

Question 14

If an alternative provides a benefit of $8 to an individual at a cost of $6,the net benefit of the alternative equals ________.

A) $0.75
B) $2
C) $14
D) $48

Question 15

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

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 16

Which of the following statements is true?

A) It is easier for a person to optimize when he has less information.
B) Optimization implies choosing the best option from a set of alternatives.
C) People always successfully optimize given the limited information they have.
D) Optimization is an easy process, and all economic agents are perfect optimizers.

Question 17

Gary has to decide between attending a 2-day art workshop and a 4-day art workshop.If he evaluates only the change in net benefit when he switches between the two options,he is using the technique of ________.

A) mean analysis
B) before and after comparisons
C) optimization using total value
D) optimization using marginal analysis

Question 18

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

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

Optimization can be achieved using either of two techniques of cost-benefit analysis.Which of the following correctly identifies the techniques?

A) Optimization using total value and optimization using profits
B) Optimization using total value and optimization using marginal analysis
C) Optimization in revenues andoptimization using costs
D) Optimization using marginal analysis and optimization using costs

Question 20

If the net benefit of Project A is $5 and that of Project B is $8,switching from Project A to Project B ________.

A) reduces the net benefit by $3
B) increases the net benefit by $3
C) increases the net benefit by $8
D) decreases the net benefit by $8

Question 21

Assume that an individual has to choose between two options,buying a cell phone or buying an iPad.The expected cost of buying a phone is $700 and the expected benefit is $900.The expected cost of buying an iPad is $300 and the expected benefit is $600.How does the individual arrive at the optimal choice if he implements:
a)optimization using total value?
b)optimization using marginal analysis?

Question 22

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

Question 23

If the net benefit of Project A is $20 and that of Project B is $15,switching from Project A to Project B ________.

A) reduces the net benefit by $5
B) increases the net benefit by $5
C) reduces the net benefit by $15
D) increases the net benefit by $15

Question 24

To carry out an optimization analysis,________.

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 25

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?

Question 26

If Project A has a cost of $5 and provides a benefit of $10,and Project B has a cost of $2 and provides a benefit of $4,then switching from Project A to Project B ________.

A) increases the net benefit by $3
B) decreases the net benefit by $3
C) increases the net benefit by $6
D) decreases the net benefit by $6

Question 27

If the opportunity cost of time is $20 per hour and an individual spends 20 hours in commuting every month,the opportunity cost of his commute is ________.

A) $1 per month
B) $20 per month
C) $200 per month
D) $400 per month

Question 28

If Project X has a cost of $6 and provides a benefit of $10 and Project Y has a cost of $25 and provides a benefit of $27,which of the following statements is true?

A) An individual can optimize by choosing Project X.
B) An individual can optimize by choosing Project Y.
C) Switching from Project X to Project Y increases net benefit by $2.
D) Switching from Project Y to Project X decreases net benefit by $2.

Question 29

If the net benefit of Project A is $10 and that of Project B is $12,which of the following statements is true?

A) An individual can optimize by choosing Project A.
B) An individual can optimize by choosing Project B.
C) Switching from Project A to Project B reduces the net benefit by $2.
D) Switching from Project A to Project B increases the net benefit by $1.2.

Question 30

If the opportunity cost of time is ________ and an individual spends ________ commuting every month,the opportunity cost of her commute is $100 every month.

A) $5 per hour; 10 hours
B) $8 per hour; 20 hours
C) 10 per hour; 10 hours
D) $12 per hour; 5 hours

Question 31

An individual pays $100 every month as rent for an apartment,and his monthly opportunity cost of commuting from the apartment to his place of work is $40.Which of the following statements is then true?

A) The direct cost of renting the apartment is $140
B) The indirect cost of renting the apartment is $140
C) The direct cost of renting the apartment is $40, whereas the indirect cost of renting the apartment is $100
D) The direct cost of renting the apartment is $100, whereas the indirect cost of renting the apartment is $40

Question 32

Among a set of alternatives with the same benefits,an individual is said to optimize if she chooses an alternative that ________.

A) has the lowest total cost
B) has the highest total cost
C) has the highest indirect cost
D) has the lowest opportunity cost

Question 33

What is meant by the term "optimization?" What do economists usually believe about how individuals optimize?

Question 34

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 3?

A) $2,000
B) $2,050
C) $2,150
D) $2,270

Question 35

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

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 36

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?

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 37

If an individual's opportunity cost of commute is $300 per month and his monthly commuting time is 60 hours,his opportunity cost of time is ________.

A) $5 per hour
B) $10 per hour
C) $30 per hour
D) $60 per hour

Question 38

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?

Question 39

Among a set of alternatives with the same total costs,an individual is said to optimize if she chooses an alternative that has the ________.

A) highest total benefit
B) highest risk
C) lowest opportunity costs
D) highest net costs

Question 40

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?

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

Question 41

Assume that a firm wants to set up a factory.It considers four different locations.The rent of the factory space and the time taken to transport the products from each of the locations to the market is shown in the table below.It is also given that the opportunity cost of time is $10 per hour.
a)Which is the optimum location?
b)If the opportunity cost of time changes to $30 per hour,is there any change in the optimum?

Question 42

Which of the following statements is true?

A) Marginal analysis is a key tool used while optimizing using total value.
B) Before and after comparisons can be used in both optimization using total value and optimization using marginal analysis.
C) Marginal analysis is the comparison of economic outcomes before and after some economic variable is changed.
D) Before and after comparisons involve calculating the incremental cost of moving from one alternative to the next best alternative.

Question 43

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.If Sarah is optimizing using marginal analysis,then which of the following statements is true?

A) She will rent the hotel room for 3 days if the benefit of staying for the third day exceeds the cost of staying for the third day.
B) She will rent the hotel room for 3 days if the benefit of staying for the third day exceeds the benefits of staying for the first 2 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 cost of staying for the first 2 days is less than the cost of staying for the third day.

Question 44

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.

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

Question 45

The following figure shows an individual's total cost of renting four apartments located at different distances from her place of work.

Refer to the figure above.Other things remaining the same,assume that the individual now has a higher opportunity cost of time.Which of the following statements is true in this context?

A) The cost curve will move up.
B) The cost curve will move down.
C) Optimization using total value will not lead to an efficient outcome.
D) Optimization using marginal analysis will not lead to an efficient outcome.

Question 46

An individual rents an apartment for $200 per month.His monthly opportunity cost of commuting to work from this apartment is $50.After a year,he moves to an apartment closer to his place of work,but pays a rent of $250.Compared to the initial situation,after a year,his direct cost of renting the apartment ________.

A) increases, while the indirect cost of renting the apartment remains unchanged
B) increases, while the indirect cost of renting the apartment decreases
C) remains the same, while the indirect cost of renting the apartment decreases
D) remains the same, while the indirect cost of renting the apartment increases

Question 47

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

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

Question 48

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 statements is true?

A) Both optimization techniques will provide an efficient outcome, but optimization using total value will be faster to implement.
B) Both optimization techniques will provide an efficient outcome, but optimization using marginal analysis will be faster to implement.
C) Only optimization using marginal analysis can be used to arrive at an optimum choice. Optimization using total value will not be applicable in this case.
D) Only optimization using total value can be used to arrive at an optimum choice. Optimization using marginal analysis will not be applicable in this case.

Question 49

The analysis of how a customer's taste for cars will change when her wealth triples falls under the scope of ________.

A) normative analysis
B) marginal research
C) cost-benefit analysis
D) before and after comparisons

Question 50

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 ________.

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 51

Assume that an individual with an opportunity cost of time of $20 per hour has to choose between renting four apartments.The rents of the four apartments and the individual's monthly commuting time to work are shown in the following table.Calculate the direct cost,indirect cost,and total cost that the individual will incur if she rents any of these apartments.Also,determine the apartment that is optimum for the individual.Graph the total cost involved for the various choices.

Question 52

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 lowest if Ryan chooses to rent Apartment ________.

A) 1
B) 2
C) 3
D) 4

Question 53

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?

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

Question 54

An individual decides to rent an apartment for $7,000 per month.The commuting time from this apartment to her office is 80 hours per month.If the individual's opportunity cost of time is $30 per hour,calculate the direct cost,indirect cost,and total cost she would incur per month if she rents the apartment.

Question 55

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.If the opportunity cost of time increases to $60 per hour,renting which apartment will minimize Ryan's total cost every month?

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

Question 56

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?

Question 57

Refer to the table above.If the opportunity cost of time increases to $60 per hour,renting which apartment will turn out to be the most expensive every month?

A) 1
B) 2
C) 3
D) 4

Question 58

The following figure shows an individual's total cost of renting four apartments located at different distances from her place of work.

Refer to the figure above.Which apartment is the best feasible choice for the individual?

A) Apartment 1
B) Apartment 2
C) Apartment 3
D) Apartment 4

Question 59

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?

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 60

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

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 61

Which of the following is an example of marginal analysis?

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 62

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.For which of the following choices is the marginal total cost the lowest?

A) Choosing factory Close over factory Far
B) Choosing factory Far over factory Very Far
C) Choosing factory Very Close over factory Close
D) Choosing factory Close over factory Very Far

Question 63

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?

A) −$50
B) −$100
C) $50
D) $150

Question 64

What are the different steps involved in optimization using marginal analysis?

Question 65

Which of the following statements is true of marginal analysis?

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 66

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?

Question 67

________ uses the concept of marginal analysis to determine the optimum choice.

A) Empiricism
B) Optimization using total value
C) Before and after comparisons
D) Optimization using marginal analysis

Question 68

If the total cost incurred by a firm in hiring ten workers is $45 and the total cost incurred when the eleventh worker is hired is $60,the marginal cost of hiring the eleventh worker is ________.

A) $1.33
B) $15
C) $20
D) $105

Question 69

If the marginal rent cost of moving from Apartment 1 to Apartment 2 is −$60 and the marginal commuting cost of moving from Apartment 1 to Apartment 2 is $40,moving from Apartment 1 to 2 will ________.

A) cost the renter $60 more in rent and $40 more in commuting
B) save the renter $60 more in rent and $40 more in commuting
C) save the renter $60 in rent but cost $40 more in commuting
D) cost the renter $60 more in rent but save $40 in commuting

Question 70

The Principle of Optimization at the Margin states that ________.

A) an optimal alternative has the lowest indirect costs in comparison to other feasible alternatives
B) an optimal alternative has the highest net benefits in comparison to other feasible alternatives
C) moving toward the optimal alternative makes the decision maker better off and moving away from it makes him worse off
D) moving toward the optimal alternative makes the decision maker worse off and moving away from it makes him better off

Question 71

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 Very Close over factory Close?

A) −$100
B) −$200
C) $100
D) $200

Question 72

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?

A) $100
B) −$200
C) $50
D) $150

Question 73

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?

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 74

A cost-benefit calculation that focuses on the difference between a feasible alternative and the next feasible alternative is called ________.

A) marginal analysis
B) equilibrium analysis
C) empiricism
D) economic trade-off

Question 75

Mary has to choose between a 4-day vacation and a 5-day vacation to the same place.To arrive at the optimal choice,which optimization technique will be arithmetically easier and faster to implement and why?

Question 76

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?

A) $40
B) $100
C) $150
D) −$150

Question 77

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

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

Question 78

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.Which is the optimum location for the firm to set up its factory?

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

Question 79

What is meant by before and after comparisons? Is it different from the concept of marginal analysis? Explain with the help of suitable examples.

Question 80

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

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