Question

The following table shows John’s total utility derived from billiards and bowling games. Assume John has $30 to spend on a game of billiards and/or a game of bowling. A game of billiards costs him $4, and a game of bowling costs him $2. Which of the following is John’s utility-maximizing combination of the games of billiards and the games of bowling?

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Table 6.5

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​ Quantity	Total Utility
	Games of billiards	Games of bowling
0	0	0
1	100	70
2	180	130
3	240	180
4	272	210
5	288	218
6	292	222​

Select one:

a.

​Twelve games of bowling

b.

​Four games of billiards and four games of bowling

c.

​Five games of billiards and five games of bowling

d.

​Five games of billiards and two games of bowling

e.

​Three games of billiards and eight games of bowling

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Suppose Ernie gives up his job as financial advisor for P.E.T.S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which were originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000 and the explicit costs were $10,000. The economic profit earned by Ernie was _____.​

Select one:

a.

$20,000​

b.

$50,000​

c.

$40,000​

d.

​$10,000

e.

$9,500​

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The Hound Dog Bus Company contemplates expanding its New Mexico operations by offering services from Raton to Santa Fe. It has estimated that the total cost of the trip will be $400, of which $150 is the fixed cost, which it has already paid. The company expects an increase in revenue by $275 from the trip. The Hound Dog Bus Co. should:​

Select one:

a.

​offer this service because the additional revenue exceeds the additional cost of this service.

b.

​offer this service because it will earn a positive economic profit.

c.

​not offer this service because marginal revenue is less than marginal cost.

d.

​not offer this service because total cost exceeds total revenue.

e.

​offer this service because total revenue exceeds fixed cost.

Question 14

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Which of the following would shift the supply curve of a good to the left?​

Select one:

a.

​An increase in the cost of an important resource used to produce the good

b.

​An increase in the price of that good

c.

​An increase in the number of producers of the good

d.

​A decrease in the price of an alternative good

e.

​An improvement in technology used in producing the good

Question 15

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A consumer’s willingness to pay additional money for time-saving goods depends primarily on:​

Select one:

a.

​the number of people in his or her household.

b.

​the wealth and property he or she possesses.

c.

​the opportunity cost of his or her time.

d.

​his or her social status.

e.

​the distance between his or her home and workplace.

Answer 1

1. c. ​Five games of billiards and five games of bowling
(For 5 games of billiard and 5 games of bowling, MUbilliard/Price of billiard = (288-272)/4 = 16/4 = 4 and MUbowlingPrice of bowling = (218-210)/2 = 8/2 = 4
Thus, MU of last dollar spend on two goods are equal and their total cost = (5*4) + (5*2) = 20 + 10 = 30 = income.
So, this combination maximizes utility within the income constraint.)

2. e. $9,500​
(Economic profit = Total revenue - Total cost = 50,000 - 10,000 - 30,000 - (5% of 10,000) = 10,000 - 500 = 9500)

3. a. ​offer this service because the additional revenue exceeds the additional cost of this service.
(Additional revenue = $275 and additional cost = 400-150 = 250 so additional revenue > additional cost and thus this service should be offered.)

4. a. An increase in the cost of an important resource used to produce the good
(As cost of production increases, supply decreases.)

5. c. ​the opportunity cost of his or her time.
(Consumer's willingness to pay depends on the opportunity cost of his/her time.)