# Economics 5050

Topics: Costs, Supply and demand, Economics Pages: 8 (1669 words) Published: March 10, 2012
Question 1
0 out of 1 points

In making a decision about whether to increase its advertising budget the firm management should not consider Answer
the added revenue from increased sales
interest payments on the firm's loan.
Response Feedback: Is this fixed cost that the firm has to pay regardless of advertising?

Question 2
0 out of 1 points

If marginal cost is equal to average total cost, then
marginal cost is minimized.
average total cost is minimized.

Question 3
0 out of 1 points

A restaurant currently has two cooks and ten waiters. Cooks earn \$10 an hour and waiters earn \$5 an hour. The last cook added 40 meals served to total output, while the last waiter added 25 meals served to total output. In order to maximize the number of meals served with a fixed budget, the manager should Answer

should use more cooks and fewer waiters because cooks are more productive than waiters. Correct Answer: d.
should use more waiters and fewer cooks because productivity per dollar is higher for waiters than for cooks. Response Feedback: What is the Marginal Product (additional meals served) per dollar spent (wages) for cooks? What is the Marginal Product per dollar spent for waiters? Which is more productive per dollar spent?

Question 4
0 out of 1 points

If the price elasticity of demand is 1.5 (in absolute value), regardless of which two points on the demand curve are used to compute the elasticity, then Answer
demand is perfectly elastic, and the demand curve is horizontal. Correct Answer: d.
demand is elastic, and the demand curve is downward sloping but not a straight line.

Question 5
0 out of 1 points

When marginal cost is rising, average variable cost
must be rising.
could be rising or falling.

Question 6
0 out of 1 points

The Interior Department recently announced that it will increase the entrance fees at Yellowstone National Park in order to increase park revenues. The Interior Department must believe that Answer

the demand for park services is elastic.
the percentage increase in fees will be greater than the percentage decrease in the number of park visitors.

Question 7
0 out of 1 points

A dry cleaner currently has 10 workers and 4 machines. The workers' wage rate is \$300 per worker and the rental rate for a machine is \$500. The last worker added 600 units to total output and the last machine also added 600 units to total output, and the last machine also added 600 units to total output. If the dry cleaner uses 11 workers and 3 machines instead, then Answer

cost will be unchanged and output will decrease by 200 units. Correct Answer: d.
output will be unchanged and cost will decrease by \$200.

Question 8
0 out of 1 points

A Blue Ribbon Committee has decided that the amount of acid rain should be reduced and is trying to determine the optimal level of reduction. There are benefits from reducing acid rain (reduced loss of wildlife and forest, better health, etc.), but there are also costs. The committee estimates that the marginal benefit of each unit of reduction is \$1,400 − 5R, where R is units of reduction, and the marginal cost is 2R. If the committee wants to maximize the net benefit from reducing acid rain, what is marginal cost at the optimal level of reduction? Answer

\$20
\$400

Question 9
0 out of 1 points

A clinic uses doctors and nurses to serve the maximum number of patients given a limited annual payroll. The clinic currently has 10 doctors and 30 nurses. The last doctor...