1			A firm will maximize profit by producing that level of output at which…
			A)	the additional revenue from the last unit sold equals the additional cost of the last unit.
			B)	total revenue equals total cost.
			C)	total revenue exceeds total cost by the largest amount.
			D)	both a and b
			E)	both a and c
2			For an unconstrained maximization problem the decision maker…
			A)	seeks to maximize total benefits.
			B)	seeks to maximize net benefits.
			C)	does not take the objective function into account because there is no constraint.
			D)	does not take all costs into account because there is no constraint.
			E)	none of the above
3			For a constrained maximization problem, the decision maker…
			A)	seeks to maximize the objective function.
			B)	seeks to minimize costs.
			C)	is constrained by the choice set of values for the activities.
			D)	is constrained by a lack of information about the objective function.
			E)	both a and c

The next 3 questions refer to the following figure:

The graph shows marginal benefits (MB) and marginal cost (MC) of activity A.

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4			If the decision maker is choosing 100 units of activity A,
			A)	this level maximizes net benefits.
			B)	the activity could be increased by one unit and net benefits will increase by $20.
			C)	the activity could be increased by one unit and net benefits will decrease by $20.
			D)	the activity could be reduced by one unit and net benefits will increase by $30.
			E)	the activity could be reduced by one unit and net benefits will decrease by $30.
5			If the decision maker is choosing 400 units of activity A,
			A)	this level maximizes net benefits.
			B)	the activity could be reduced by one unit and net benefits will increase by $10.
			C)	the activity could be reduced by one unit and net benefits will decrease by $10.
			D)	the activity could be increased by one unit and net benefits will increase by $15.
			E)	the activity could be increased by one unit and net benefits would decrease by $15.
6			If the decision maker is choosing 300 units of activity A,
			A)	this level maximizes net benefits.
			B)	if the activity is increased by one unit, net benefits will increase by $20.
			C)	if the activity is decreased by one unit, net benefits will decrease by $20.
			D)	both b and c.
			E)	none of the above.

The next 3 questions refer to the following:

A radio manufacturer is experiencing theft problems at its warehouse and has decided to hire security guards to reduce the thefts. The firm want to minimize the net cost of warehouse thefts.

Number of Security Guards	Number of Radios Stolen Per Week
0	50
1	30
2	20
3	14
4	8
5	6

7			If each security guard is paid $200 a week and the cost of a stolen radio is $25, how many security guards should the firm hire?
			A)	5
			B)	4
			C)	3
			D)	2
			E)	1
8			If the cost of a stolen radio is $25, what is the MOST the firm would be willing to pay to hire the first security guard?
			A)	$700
			B)	$500
			C)	$250
			D)	$200
			E)	none of the above
9			If each security guard is paid $200 a week and the cost of a stolen radio is $50, how many security guards should the firm hire?
			A)	5
			B)	4
			C)	3
			D)	2
			E)	1
10			The optimal level of pollution reduction is that level at which…
			A)	the marginal benefit of pollution reduction exceeds the marginal cost of pollution reduction by the greatest amount.
			B)	the total benefit of pollution reduction exceeds the total cost of pollution reduction by the greatest amount.
			C)	pollution is eliminated entirely.
			D)	the total cost of pollution equals the total cost of pollution reduction.
			E)	both b and d.

Answer the next two questions using the following marginal benefit and marginal cost functions for activity A:

11			The optimal level of A is…
			A)	2000
			B)	1000
			C)	600
			D)	200
			E)	100
12			Adding the 50th unit of activity A will…
			A)	increase net benefits by 15.
			B)	reduce net benefits by 15.
			C)	increase net benefits by 97.5.
			D)	decrease net benefits by 97.5.
			E)	decrease net benefits by 82.5.
13			When the choice variable is a continuous variable, the decision rule for an unconstrained maximization problem is:
			A)	If MB > MC, increase the activity.
			B)	If MB > MC, decrease the activity.
			C)	Choose the activity so that MB = MC.
			D)	both a and c
			E)	both b and c
14			Brenda consumes only shoes and sushi. In order to maximize her happiness subject to a limited income, Brenda should purchase the amounts of shoes and sushi at which…
			A)	the addition to happiness per dollar spent on shoes is the same as the addition to happiness per dollar spent on sushi.
			B)	the addition to happiness of the last pair of shoes is the same as the addition to happiness of the last meal of sushi.
			C)	she spends all her income.
			D)	both b and c
			E)	both a and c
15			In making a decision about its newspaper advertising budget, a manager of a firm should NOT consider…
			A)	the impact of the decision on the net benefits of newspaper advertising.
			B)	the additional revenue from increased advertising.
			C)	the sunk costs of developing the newspaper ad.
			D)	the cost of the additional advertising.
16			Which of the following statements represents poor decision making?
			A)	I've already spent more than 3 years in college so I can't drop out and take a job now.
			B)	I paid for the movie ticket so I might as well stay until the end.
			C)	I've put in so much time on these golf lessons, I can't quit now.
			D)	My stock has dropped $15 a share so I can't afford to sell it now.
			E)	all of the above.

The next two questions refer to the following:

17			If doctors make $90,000 per year, what do nurses make per year?
			A)	$50,000 per year
			B)	$45,000 per year
			C)	$40,000 per year
			D)	$35,000 per year
18			If doctors make $70,000 per year and nurses make $30,000 per year, then for the limited annual payroll,
			A)	the clinic could serve more patients by hiring fewer doctors and more nurses.
			B)	the clinic could serve more patients by hiring more doctors and fewer nurses.
			C)	the clinic is not making the correct decision because the additional patients per dollar spent on doctors is greater than the additional patients per dollar spent on nurses.
			D)	the clinic is making the correct decision because doctors are more productive than nurses.
			E)	both b and c
19			A firm can maximize profit (net benefit) by choosing to produce that level of output at which…
			A)	the additional revenue from the last unit sold is maximized.
			B)	total revenue equals total cost.
			C)	the difference between the additional revenue from the last unit sold and the additional cost of that unit is maximized.
			D)	the additional revenue from the last unit sold equals the additional cost of that unit.
20			If the marginal benefits of increasing study time are greater than the marginal costs, then
			A)	study time should be decreased to zero.
			B)	study time should be increased.
			C)	no conclusion about the relative merits of more or less study time is possible given this scenario.
			D)	there is plenty of time left to study.
			E)	study time should be decreased.