chap003

# chap003 - Chapter 3 MARGINAL ANALYSIS FOR OPTIMAL DECISION...

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Chapter 3: MARGINAL ANALYSIS FOR OPTIMAL DECISION MAKING Multiple Choice 3-1 A firm will maximize profit by producing that level of output at which a. the additional revenue from the last unit sold exceeds the additional cost of the last unit by the largest amount. b. the additional revenue from the last unit sold equals the additional cost of the last unit. c. total revenue exceeds total cost by the largest amount. d. total revenue equals total cost. e. both b and c 3-2 The function a decision maker seeks to maximize or minimize is the ________ function. a. optimal b. decision-making c. objective d. marginal e. none of the above 3-3 Choice variables a. determine the value of the objective function b. determine the constraint c. can only take on integer values d. cannot be continuous e. both c and d 3-4 For an unconstrained maximization problem a. the decision maker seeks to maximize net benefits. b. the decision maker seeks to maximize total benefits. c. the decision maker does not take cost into account because there is no constraint. d. the decision maker does not take the objective function into account because there is no constraint. e. none of the above 3-5 When marginal cost is greater than marginal benefit at the current activity level, the decision maker can increase net benefit by decreasing the activity because a. total benefit will rise by more than total cost will rise. b. marginal cost is rising faster than marginal benefit is falling. c. net benefit is upward sloping at this point. d. total cost will fall by more than total benefit will fall. 3-6 For a constrained minimization problem, the decision maker a. is constrained by the specific amount of total benefits. b. is constrained by the choice set of values for the activities. c. seeks to minimize the cost of achieving a specific goal. d. all of the above e. none of the above Chapter 3 : MARGINAL ANALYSIS FOR OPTIMAL DECISION MAKING 27

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3-7 A continuous choice variable a. must be continuously varied to attain the goal. b. can take on only special values between two end points. c. is in unconstrained but not constrained problems. d. all of the above e. none of the above The next 3 questions refer to the following: An agency is having problems with personal phone calls made during working hours. Each minute of a personal call costs the agency \$0.50 in wasted wages. The agency decides to hire operators to monitor calls in order to attain the optimal number of personal calls (minimize total cost of personal calls). Number of Operator s Total minutes of personal calls (per hour) 0 600 1 480 2 410 3 370 4 350 3-8 If operators receive \$25 an hour, how many operators should the agency hire? a. 0 b. 1 c. 2 d. 3 e. 4 3-9 If operators receive \$25 an hour, what is the minimum possible total cost of personal calls (per hour)?
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