Froeb

Multiple Choice Questions:

1. When economist speak of “marginal” they mean

a. Opportunity

b. Scarcity

c. Incremental

d. Unimportant

2. Managers undertake an investment only if

a. Marginal benefits of the investment are greater that zero

b. MCs of the investment are greater than marginal benefits of the investment

c. Marginal Benefits are greater than MCs

d. Investment decisions do not depend on marginal analysis

3. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage
of P15. Raw materials are ordered weekly, and they cost P10 for every unit produced. The weekly cost of
the rent payment for the factory is P2,250. How do the overall costs break down?

a. Total variable cost is P17,000; total fixed cost is P2,250; and total cost is P19,250.

b. Total variable cost is P12,000; total fixed cost is P7,250; and total cost is P19,250.

c. Total variable cost is P5,000; total fixed cost is P14,250; and total cost is P19,250.

d. Total variable cost is P5,000; total fixed cost is P2,250; and total cost is P7,250.

4. Total costs increase from P1,500 to P1,800 when a firm increases output from 40 to 50 units. Which of
the following is true if MC is constant?

a. FC = P100

b. FC = P200

c. FC = P300

d. FC = P400

5. A manager of a clothing firm is deciding whether to add another factory in addition to one already in
production. The manager would compare

a. the total benefits gained from the two factoies to the total cost of running the two
factories.
 b. the incemental benefit expected from the second factory to the total cost of running the two
factories.

c. the incremental benefit expected from the second factory to the total costs of running
the two factories.

d. the total benefits gained from the two factories to the incremental costs of running the two
factories.

6. the firm is thinking of hiring an additional worker to their organization who can increase total
productivity by 100 units a week. The cost of hiring him is 1,500 per week. If the price of each unit is
P12.

a. the MR of hiring the worker is 1,500.

b. the MC of hiring the worker is 1,200

c. the firm should not hire the worker since MR < MC

d. all of the above

7. A retailer has to pay P9 per hour to hire 13 workers. If the retailer only needs to hire 12 workers, a
wage rate of P7 per hour is sufficient. WHat is the MC of the 13th worker?

a. P117

b. P9

c. P33

d. P84

8. If a firm's AC is rising, then

a. MC is less than AC

b. MC is rising

c. MC is greater than AC

d. the firm is making an economic profit

9. A company is producing 15,000 units. At this output level, MR is P22 and the MC is P18. The firm sells
each unit for P48 and average total cost is P40. What can we conclude from this information?

a. The company is making a loss

b. The cost needs to cut production

c. The company needs to increase production

d. Not enough information is provided

10. Food Fanatics caters meals where its cost of producing an extra meal is P25. Each of its meals sells
for P20. At this rate, what should the company do?
 a. Produce more meals and increase its profit

b. Produce fewer meals and increase its profit

c. Not change production

d. None of the Above

Problems:

1. You run a game day shuttle service for parking services for the local ball club. Your cost for different
customer loads are 1- P30; 2- P32; 3- P35; 4- P38; 5- P42; 6- P48; 7- P57; and 8- P68. What are your MCs
for each customer load level? What is the AC? If you are compensated P10 per ride, what customer load
would you want?

2. Children in poor neighborhoods have bleak outlooks on life and do not see much gain to studying. A
recent experiment is paying children in poor neighborhoods $100 for each A rating they earn in a six-
week grading period. How does this affect the children's behavior?

3. Your insurance firm processes claims through its newer, larger, high-tech facility and its older, smaller,
low-tech facility. Each month, the high-tech facility handles 10,000 claims, incurs P100,000 fixed costs
and P100,000 in variable costs. Each month, the low-tech facility handles 2,000 claims, incurs P16,000 in
fixed costs and P24,000 in variable costs. If you anticipate a decrease in the number of claims where will
you lay off workers?

4. A copier comapny wants to expand production. It currently has 20 workers who share eight copiers.
Two months ago, the firm added two copier, and output increased by 100,000 pages per day. One
month ago, it added five workers and productibity also increased by 50,000 pages per day. Copiers cost
about twice as much as workers. Would you recommend it hire another employee or buy another
copier?