Question

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

A) marginal analysis. B) ordinal analysis. C) cardinal analysis. D) Pareto analysis.

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

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

In a marketplace, prices:

A) are determined through auctions.

B) act as incentives that allow for the efficient allocation of resources.

C) act as a measure of value, and do not affect the allocation of resources.

D) are determined by politicians and regulators.

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) lowest opportunity costs.

C) highest net costs.

D) highest risk.

Which of the following statements identifies a difference between optimization in levels and optimization in differences?

A) Optimization in levels compares only the benefits from different alternatives, whereas optimization in differences compares only the costs of different alternatives.

B) Optimization in levels compares only the costs of different alternatives, whereas optimization in differences compares only the benefits of different alternatives.

C) Optimization in levels calculates the net benefits of different alternatives, whereas optimization in differences calculates the change in net benefits when switching from one alternative to another.

D) Optimization in levels calculates the change in net benefits when switching from one alternative to another, whereas optimization in differences calculates the net benefits of different alternatives.

Answer 1

(1) (A)

Marginal analysis captures the difference in costs and benefits between a feasible alternative and the next-feasible alternative.

(2) (A)

Marginal cost = Cost of feasible alternative - Cost of next-feasible alternative

(3) (B)

In free market, prices ensure the equality of quantity demanded and quantity supplied, this ensuring efficiency.

(4) (B)

An alternative with minimum implicit cost (opportunity cost) is to be selected.

NOTE: As per Answering Policy, 1st 4 questions are answered.