Econ 1110 Prelim 1 Sp11

Econ 1110 Prelim 1 Sp11 - Cornell University Department of...

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Cornell University Spring 2011 Department of Economics Prof. R.H. Frank Your name_____________________________________________ Your signature__________________________________________________ Your Section___________________________________________________ Econ 1110 Prelim 1 For each of the 20 multiple-choice questions below, circle the best response. All questions have equal weight.
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1. You are planning a trip to Miami, a 1,000-mile round-trip journey. Except for the monetary cost, you are completely indifferent between taking your car and the bus. From the Internet you learn that someone with your type of car incurs the following costs during a year in which the car is driven 10,000 miles: Insurance $1,000 Interest $2,000 Fuel and Oil $4,000 Maintenance $2,000 Total $9,000 These costs seem to represent accurate estimates of your own costs, especially the insurance figure, since last month you bought a new type of policy that charges you 10 cents for every mile you put on your odometer during the year. At what roundtrip bus fare would you be indifferent between taking the bus and driving your car? a. $900 b. $800 c. $700 d. $600 e. None of the above is correct. Answer: c . As in the examples discussed in class, Fuel & Oil and Maintenance expenses vary with mileage, but unlike those examples, insurance now also varies with total mileage. Together, the mileage- related costs total $7,000 for a each 10,000 miles driven, so the marginal cost of driving your car is $0.70 per mile, which translates into a roundtrip cost of $700. 2. You purchase your CDs through MBG Music Service, which offers you any three CD's free provided you choose a total of at least four CDs. (The least expensive CDs are the ones that you pay for.) The CD's you definitely want and their prices are: The Burt Bacharach Experience ($10), Soundtrack to the World's Scariest Police Chases ($12), William Shatner Sings Rock Standards ($8), The Bach Unaccompanied Cello Suites ($42), and Kenny G’s Greatest Hits ($18). What is the marginal cost of selecting Linkin Park’s Minutes to Midnight ($15) as well? a. $8 b. $10 c. $12 d. $15 e. None of the above. Answer: c . Minutes to Midnight displaces Police Chases from your freebie list, so adds $12 to your bill. 3. You have paid $10 to eat dinner at an all-you-can-eat buffet. You should continue eating until a. you have finished eating “seconds”. b. the benefit you receive from additional food equals $10. c. you have eaten all that you comfortably can. d. your average cost per serving falls below $10. e. the benefit from additional food equals $0. Answer: e . Since the marginal cost of additional food is 0, you should continue eating until the marginal benefit is also 0. 4. Fred and Alma are motor mechanics. Alma can replace 4 clutches per day or 12 sets of brakes. Fred
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This note was uploaded on 04/19/2011 for the course ECON 1110 taught by Professor Wissink during the Spring '06 term at Cornell.

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Econ 1110 Prelim 1 Sp11 - Cornell University Department of...

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