Question

1. Each hour that one spends studying economics is an hour that could be used for some other activity. The value of the most valuable activity given up to study economics is called a(n):

marginal cost

marginal benefit

incentive

opportunity cost

2. The “all-you-can-eat” buffet at Kobe Sushi Palace costs $15 at the entrance. In order to maximize your benefit at the buffet, you should:

eat just enough to satisfy your hunger

eat until the average cost per plate equals your marginal cost

eat until your marginal benefit of the next plate is $15

eat until your marginal benefit of the next plate is zero

3. Which of the following questions would least likely represent marginal analysis?

I’m planning to spend 120 minutes fishing, but maybe I should spend more?

I’m planning to spend $12 on apples, but maybe I should spend $1 more?

I’m planning to spend $6 on bananas, but maybe I should buy oranges instead?

I’m planning to hire five cooks, but maybe I should hire one more?

4. In order to attend the football game, you need to buy a ticket as well as forgo a day’s wages and tips at the restaurant you work at. The money you do not earn is a(n):

explicit cost

opportunity cost

sunk cost

marginal cost

5.Each hour that one spends studying economics is an hour that could be used for some other activity. The value of the most valuable activity given up to study economics is called a(n):

marginal cost

marginal benefit

incentive

opportunity cost

Answer 1

1. Option 4. It is the next best alternative forgone for selecting an option
2. Option 3. The utility maximisation is at where marginal cost = marginal benefit
3. Option 3. Marginal analysis is the additional benefit derived for making an additional cost for a good. Here banana and orange are two different good which cannot be compared while doing marginal analysis
4. Option 2. It is the income forgone for attending the football game
5. Option 4. It is the next best alternative forgone for selecting an option