Question

1) The study of economics arises due to

A) money B) scarcity C) greed D) resources

2) Think about your favorite meal in your favorite restaurant. If the price of the meal increases, you would probably purchase it less often. It demonstrates that when the price of a product _____ the demand for it _____.

A) increases, increases B) decreases, decreases C) increases, decreases D) decreases, increases

3) Economics promotes which of the following as the way to make the best decision?

A) Continue an enjoyable activity as long as you do not have to pay for it. B) Continue an enjoyable activity until it is no longer enjoyable. C) Continue an enjoyable activity until you cannot afford to pursue it. D) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Table 1-1 Imagine that you have a restaurant and you want to decide how many hours a day you want to keep it open. The longer the restaurant is open, the more revenues you make. Your total revenues (TR) as a function of hours open are shown in column 2 below: Hours 0,1,2,3 TR, 0, 35,60,80 / Hours 4,5,6,7,8 TR, 92,100,105,108,110 TC TR-TC MR MC For each hour the restaurant is open, you pay a $12 wage to your employee. So, your cost per hour is $12. Now answer the following questions:

4) Refer to Table 1-1. Given that you pay your employee $12 per hour, fill in the 3rd column for your total costs (TC) in the above table. What is your total cost if you keep the restaurant open for 3 hours?

A) $12 B) $24 C) $36 D) $48 E) $60

5) Refer to Table 1-1. Take the difference of your revenues (TR) and your costs (TC) to obtain your profits. Write down your profits in column 4. To maximize your profits, you must keep the restaurant open for _____ hours and as a result, your profits would be _____ dollars.

A) 4 hours, $44 B) 3 hours, $36 C) 2 hours, $36 D) 5 hours, $40

6) Refer to Table 1-1. Now that you worked with TR and TC, let’s try to answer the same question using the marginals. Using TR data in column 2, fill in the marginal revenues (MR) in column 5. Using TC data in column 3, fill in the marginal costs (MC) in column 6. If you do it correctly, you know that your MR and MC for 7 hours are _____ and _____, respectively. A) $3, $3 B) $3, $12 C) $12, $12 D) $12, $3

7) Refer to Table 1-1. Using the marginals, how many hours should you keep the restaurant open? Note that you should keep it open as long as MR is greater than OR equal to MC.

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

Answer 1

1) The study of economics arises due to

Solution: scarcity

Explanation: The study of economics occurs because resources are scarce

2) Solution: increases, decreases

Explanation: When price of meal increased the demand was reduced

3) Solution: Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Explanation: Economics promotes upto the point where the marginal revenue equals marginal cost

4) Solution: 36

Working:

Hours	TR	TC
0	0
1	35	12
2	60	24
3	80	36
4	92	48
5	100	60
6	105	72
7	108	84
8	110	96

5) Solution: 4 hours, $44

Working:

Hours	TR	TC	TR-TC
0	0
1	35	12	23
2	60	24	36
3	80	36	44
4	92	48	44
5	100	60	40
6	105	72	33
7	108	84	24
8	110	96	14

6) Solution: $3, $12

Working:

Hours	TR	TC	TR-TC	MR	MC
0	0
1	35	12	23	35	12
2	60	24	36	25	12
3	80	36	44	20	12
4	92	48	44	12	12
5	100	60	40	8	12
6	105	72	33	5	12
7	108	84	24	3	12
8	110	96	14	2	12

　

7) Solution: 4 Hours

Working:

Hours	TR	TC	TR-TC	MR	MC
0	0
1	35	12	23	35	12
2	60	24	36	25	12
3	80	36	44	20	12
4	92	48	44	12	12
5	100	60	40	8	12
6	105	72	33	5	12
7	108	84	24	3	12
8	110	96	14	2	12