Macro Chapter 3

Suppose you have just landed a job near the center of a city and you now need to decide where to live. If you live close to the city​ center, your​ round-trip commute will be 15 minutes. If you live in the distant​ suburbs, your​ round-trip commute will be 60 minutes. There are lots of workers like you who work downtown. Since there are only a limited number of apartments near the city​ center, these apartments will be allocated based on _______________________ that you face. This process is known as _____________.

both the costs and benefits optimization

You are considering renting a city apartment with​ 1,000 square feet for ​$1,500 per month. The monthly rent on a​ larger, 1,500-square-foot city apartment is ​$1,950. The marginal cost of renting an apartment with 500 additional square feet is ​$_____ per square foot per month. ​(Round your response to two decimal places.​)

$0.90

You have the option to play tennis or a round of golf​ (but not​ both). The tennis match requires you to take 2 hours off from work and the round of golf requires you to take 4 hours off from work. Playing tennis has value to you equal to ​$40​, while golf has value to you equal to ​$105. Tennis courts are publicly available at no​ cost, but golf costs ​$50 per round. Suppose your wage from working is ​$8 per hour. The net benefit from playing tennis is ​$____ and the net benefit from playing golf is ​$____. ​(Enter your responses as integers.​) ​Therefore, you should play ___________.

$24; $23 tennis

You are hired as a consultant for a local restaurant. It is considering whether to close at​ 9:00 p.m., stay open an extra hour​ (10:00 p.m.), or close earlier​ (8:00 p.m.). Based on wages and utility​ bills, the added cost​ (the marginal​ cost) of staying open for each additional hour is ​$232. If the additional revenue​ (the marginal​ revenue) during the last hour is ​$262​, the profit earned during the last hour of operation will be​ $____. If the additional revenue during the last hour is ​$172​, the profit earned during the last hour of operation will be​ $_____. If the additional revenue​ (the marginal​ revenue) from staying open until 10.00 p.m. is ​$232​, the profit earned during the last hour of operation will be​ $____.

$30 $-60 $0

You are a professor of economics at a university.​ You've been offered the position of serving as department​ head, which comes with an annual salary that is ​$8,500 higher than your current salary.​ However, the position will require you to work 200 additional hours per year. Suppose the next best use of your time is spending it with your​ family, which has value of ​$40 per hour. What is the difference in the net benefit from becoming the department​ head? The change in net benefit is ​$_____. ​(Enter your response as an integer) To​ optimize, you ____________ become a department head.

$500 should

Suppose your total benefit from eating slices of pizza​ (value in​ dollars) is 6x−x^2​, where x is the number of slices of pizza. Pizza is sold by the slice and costs ​$22 per​ slice, and so the total cost of pizza is 2x. Using optimization in​ levels, what is the optimal amount of pizza for you to​ eat? Your net benefit is maximized at ___ slices of pizza. ​(Enter your response as an integer.​)

2 slices

Research was conducted by professor Jobs to check which one program out of three given programs is the optimal choice for a student. The three options are a 6​ month, a 12​ month, or a 15 month program. Important information considered by the professor in his research is how much a student pays in tuition and fees for a given program within different time spans. The program is​ intensive, so it can be completed faster but at higher costs. The three programs yield the same benefit for the student. The program can be completed in 6​ months, 12​ months, or 15 months. The tuition and fees are​ $38,600, $35,000 and​ $28,600 respectively. Professor Jobs assumes the opportunity cost of time to a student for the program is​ $2,000 per month ​ Therefore, the professor concludes that the optimal decision for the student is to choose the _____ month program. If professor Jobs assumes the opportunity cost of time to a student for the program is​ $500 per month instead of​ $2,000 per​ month, then the​ $2,000 per month cost curve lies __________ the​ $500 per month cost curve. The optimal program for students when the opportunity cost of time for the program is​ $500 per month ____________________ when compared to the scenario with the opportunity cost of time is​ $2,000 per month.

6 month program above switches to 15 month program

Economists mostly use optimization in​ differences, as opposed to optimization in​ levels, because​ ____________. A. comparing different features of alternatives is simple. B. examining the net benefits of alternatives is counter-intuitive. C. contrasting the total benefit of alternatives is intuitive. D. calculating​ cost-benefit ratios is complicated.

A. comparing different features of alternatives is simple.

Suppose you had information on the sales of similar homes just east and just west of the boundary between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a​ one-point increase in test scores by​ ___________. A. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts. B. multiplying the price of a home in either district by the difference in test scores between districts. C. dividing the difference in the prices of similar homes between districts by the average test score for both districts combined. D. dividing the difference in the prices of big homes in one district and small homes in the other district by the difference in test scores between districts. E. dividing the difference in the prices of big and small homes in a district by the average test score in that district.

A. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts.

If opportunity cost were to suddenly​ increase, total cost would A. decrease and net benefit would increase. B. increase and net benefit would decrease. C. decrease and net benefit would decrease. D. increase and net benefit would increase.

B. increase and net benefit would decrease.

What is meant by comparative​ statics? Explain with an example. A. Equilibria across multiple​ markets, such as labor​ markets, financial​ markets, and service markets. B. The effect of the best feasible​ choice, such as work​, on its marginal cost. C. A change in an​ outcome, such as work​, that results from a change in a​ factor, such as the wage. D. Changes in net benefits when a person switches from one​ alternative, such as work​, to​ another, such as no work.

C. A change in an​ outcome, such as work​, that results from a change in a​ factor, such as the wage.

Which of the following statements regarding the principle of optimization is​ true? ​(Check all that apply.​) A. It applies only in the case of monetary and financial matters. B. It means always choosing the best feasible option. C. It is the unifying principle that connects various seemingly unrelated decisions. D. It takes into account and evaluates multiple​ trade-offs. In which of the following situations is optimization a good description of​ behavior? A. Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable. B. John is careless and irresponsible causing him to make a lot of mistakes in his work. C. Rita watches movies late at night. The next​ day, she wakes up late causing her to be late to her exam. D. ​Kat, the MIT business management​ graduate, starts his first business and incurs huge financial losses despite graduating from MIT.

C. It is the unifying principle that connects various seemingly unrelated decisions. D. It takes into account and evaluates multiple​ trade-offs. A. Tia is a very fun loving person. She chooses to go on a vacation with friends instead of volunteering at NGO as a vacation is more enjoyable.

What is the difference between marginal values and average​ values? A.Marginal values show the total benefit or cost from consuming a​ good, while average values are the total benefit or cost from consuming a good divided by the amount of the good consumed. B. Marginal values show the benefit or cost from consuming one unit of a​ good, while average values are the benefit or cost from consuming all units of a good. C. Marginal values show the additional benefit or cost from consuming an additional unit of a​ good, while average values are the benefit or cost per unit of a good. D. Marginal values show the ordinal benefit or cost from consuming an additional unit of a​ good, while average values are the cardinal benefit or cost from consuming an additional unit of a good. E. Marginal values show the benefit from consuming an additional unit of a​ good, while average values are the cost from consuming an additional unit of a good.

C. Marginal values show the additional benefit or cost from consuming an additional unit of a​ good, while average values are the benefit or cost per unit of a good.

Since optimization is used to analyze​ people's choices and help them improve the outcomes of their​ choices, its A. normative only. B. positive only. C. both normative and positive. D. neither because it describes preferences but not how to improve them.

C. both normative and positive.

You and your​ friend, Jim, have just moved out of your dorm and into a new apartment. Both of you decide that you need to get a couch. Jim thinks you should get a new one from a furniture store nearby. You feel​ that, given your​ budget, it is best to buy a used one. Your other options are to buy one online or get a couch​ custom-made at the same furniture store. How would you arrive at an optimal solution​ here? Assume that your opportunity cost of time is​ $5 per hour. You and Jim would need to consider​ ___________. A. only the price of each couch. B. only the marginal benefit of each couch. C. the direct costs and the indirect opportunity cost of your time required to shop. D. the indirect costs of traveling to the furniture store and the opportunity cost of your time required to shop. E. the direct costs of the price of each couch and the cost of having each couch moved to your apartment. Now suppose that you have a summer job that pays you​ $15 per hour. How would your analysis​ change? With a​ $15-per-hour summer​ job, ____________________________ would increase.

C. the direct costs and the indirect opportunity cost of your time required to shop. the opportunity cost of your time

You and your​ friend, Jim, have just moved out of your dorm and into a new apartment. Both of you decide that you need to get a couch. Jim thinks you should get a new one from a furniture store nearby. You feel​ that, given your​ budget, it is best to buy a used one. Your other options are to buy one online or get a couch​ custom-made at the same furniture store. How would you arrive at an optimal solution​ here? Assume that your opportunity cost of time is​ $5 per hour. You and Jim would need to consider​ ___________. A. the direct costs of the price of each couch and the cost of having each couch moved to your apartment. B. only the marginal benefit of each couch. C. the direct costs and the indirect opportunity cost of your time required to shop. D. the indirect costs of traveling to the furniture store and the opportunity cost of your time required to shop. E. only the price of each couch. Now suppose that you have a summer job that pays you​ $15 per hour. How would your analysis​ change? With a​ $15-per-hour summer​ job, ____________________________ would increase.

C. the direct costs and the indirect opportunity cost of your time required to shop. the opportunity cost of your time

Determine if the following statements better describe optimization in levels or optimization in differences. John is attempting to decide on a movie. He determines that the new Batman movie provides him with​ $5 more of a net benefit than the new Spiderman movie. A.Optimization in levels​, since he is not making marginal comparisons. B. Optimization in​ levels, since he is comparing the net benefits between alternatives. C. Neither type of​ optimization, since he is considering the total benefits of alternatives. D. Optimization in​ differences, since he is calculating the change in net benefits between alternatives. E. Both types of​ optimization, since he is not considering the net benefits of alternatives. Marcia finds that the net benefit of flying from Chicago to Honolulu on a​ non-stop United Airlines flight is​ $400, and the net benefit for the same trip flying on a​ one-stop American Airlines flight is​ $200. A. Optimization in differences​, since she is making marginal comparisons. B. Optimization in​ differences, since she is calculating the change in net benefits between alternatives. C. Neither type of​ optimization, since she is not considering the total benefits of alternatives. D. Both types of​ optimization, since she is considering the net benefits of alternatives. E. Optimization in​ levels, since she is comparing the net benefits between alternatives. Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a​ $5 premium compared with all other possible spaces since she did not want to risk being late for her exam. A. Optimization in​ levels, since she is comparing the net benefits between alternatives. B. Both types of​ optimization, since she is considering the net benefits of alternatives. C. Optimization in​ differences, since she is calculating the change in net benefits between alternatives. D. Optimization in​ levels, since she is making marginal comparisons. E. Neither type of​ optimization, since she is not considering the total benefits of alternatives. Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was​ $100. The same three courses online gave her a net benefit of​ $80, and all three in a​ lecture-based format gave her a net benefit of​ $90. A. Neither type of​ optimization, since she is considering the total benefits of alternatives. B. Optimization in levels​, since she is making marginal comparisons. C. Optimization in​ differences, since she is comparing total benefits between alternatives. D. Optimization in​ levels, since she is comparing the net benefits between alternatives. E. Both types of​ optimization, since she is not considering the net benefits of alternatives.

D. Optimization in​ differences, since he is calculating the change in net benefits between alternatives. E. Optimization in​ levels, since she is comparing the net benefits between alternatives. C. Optimization in​ differences, since she is calculating the change in net benefits between alternatives. D. Optimization in​ levels, since she is comparing the net benefits between alternatives.

Advances in wireless communication technology reduce the​ non-financial costs of long​ commutes: People who ride trains can get work​ done, and people who drive cars have more entertainment options. Given this​ information, which of the following will be an effect on the geographic area of​ cities? A. The total cost of commuting from any given distance to work will reduce because the direct cost of the train ticket will fall. B. The total cost of commuting from any given distance to work will increase because the indirect cost of the commute will rise. C. The total cost of commuting from any given distance to work will increase because the direct cost of the train ticket will rise. D. The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall. How will this result impact people as they decide how close to live to the city where they​ work? They will be ________________________________________________________.

D. The total cost of commuting from any given distance to work will reduce because the indirect cost of the commute will fall. more willing to locate farther from the city

Optimization is the process that describes​ __________. A. the budgeting process for businesses. B. the production of resources. C. how to obtain relevant data. D. how to maximize wealth. E. the choices that firms make. Optimization in levels examines​ ___________, while optimization in differences analyzes​ ____________. A. total net benefits of​ alternatives; the change in net benefits. B. total net benefits of feasible​ alternatives; total net benefits of infeasible alternatives. C. total benefits of​ alternatives; total costs of alternatives. D. marginal benefits of​ alternatives; the change in marginal benefits. E. total benefits of​ alternatives; net benefits of alternatives.

E. the choices that firms make. OR E. the choices that businesses make. A. total net benefits of​ alternatives; the change in net benefits.

There is a proverb​ "anything worth doing is worth doing​ well." Do you think an economist would agree with this​ proverb? A. No​, because the total net benefit of extra effort is negative by definition. B. ​Yes, because doing something to the best of your ability is optimizing behavior. C. ​No, because doing something well has no next best alternatives with which to compare. D. ​Yes, because the marginal benefit of extra effort is typically decreasing as effort increases. E. ​No, because the marginal cost of extra effort may be greater than the marginal benefit.

E. ​No, because the marginal cost of extra effort may be greater than the marginal benefit.

Some people choose to live close to the city​ center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being​ irrational? A. ​Yes, because people face direct and indirect commuting costs. B. ​No, because people face the same living costs in and away from the city. C. ​Yes, because their direct commuting costs must be higher. D. ​Yes, because people have different preferences. E. ​No, because their opportunity cost of commuting must be lower.

E. ​No, because their opportunity cost of commuting must be lower.

When optimizing for total​ value, opportunity cost must be ______________ total cost. Assuming __________ ​benefits, the lowest cost option is the optimal choice.

added to; equal

Suppose your firm has a marginal revenue given by the equation MR equals 10 minus Upper QMR = 10 − Q​, where Q is the quantity produced and sold. This means that the seventh unit of output brings in 10 − 7 = $3 of additional revenue. The marginal cost for your firm is given by the equation MC = 2 + Q. This means that the seventh unit of output increases the marginal cost by 2 + 7 = $9. If the firm produces the seventh unit of​ output, marginal cost will be __________________ marginal revenue. In which of the following​ cases, will the profit of the firm be​ maximized? A. When the average cost of producing an additional unit is less than the marginal revenue from that unit. B. When the marginal cost of producing an additional unit is less than the marginal revenue from that unit. C. When the average cost of producing an additional unit equals the marginal revenue from that unit. D. When the marginal cost of producing an additional unit equals the marginal revenue from that unit. The​ profit-maximizing level of output is _____ units.

greater than D. When the marginal cost of producing an additional unit equals the marginal revenue from that unit. 4 units

When John determines what choice of walking shoes will give him the best bang for his buck​, he is using optimization based on _______________. When Janet looks at the additional value of purchasing a new laptop to the cost as compared to keeping her old​ one, she is using optimization based on ________________________.

total value marginal analysis

Assume that the average price for a​ 2,000-square-foot house in the city is ​$360,000 and the average rent for a​ 2,000-square-foot apartment in the city is ​$1,300 per month. Also assume that the average price for a​ 2,000-square-foot house in the suburbs is ​$250,000​, the average price for a​ 2,000-square-foot house in the county is ​$353,333​, and the average price for a​ 3,000-square-foot house in the suburbs is ​$450,000. Using comparative statics and the information​ above, what is the best estimate of the effect of living in the city​ (relative to living in the​ suburbs) on home​ prices? Living in the city changes home prices by ​$_____________. ​(Round your response to two decimal places.​)

​$110,000

You have been invited to play a​ 4-hour round of golf that has a value to you of ​$60. The total price to play the round of golf is ​$35. The net benefit of the round of golf is ​$____. ​(Enter your response as an integer.​) Now assume that you have a job that pays you ​$10 per hour. Would you be optimizing to accept the invitation to play​ golf? To​ optimize, you should ___________ golf.

​$25 not play

A company mines 390,000 tons of coal per year in a rural county. The coal is worth ​$69 per ton. The average price for a​ 2,000-square-foot house with three bedrooms more than 20 km away from the mining site in this county is ​$220,000. The average price for a​ similar, 2,000-square-foot house with three bedrooms within 4 km of the mine is 2 percent lower. Using comparative​ statics, what is the effect of mining on home prices in this​ county? Mining changes the price of a​ 2,000-square-foot home​ (with three​ bedrooms) by ​$__________. ​(Round your response to two decimal places and use a negative sign if necessary.​)

−4400