Managerial Economics: Chapter 4 Extent
(How Much) Decisions. Exam Questions
With Correct Answers.
Which of the following is an example of an extent decision?
a. Should workers receive overtime pay?
b. Should workers receive equity compensation?
c. How many workers should be hired?
d. Should ...
Which of the following is an example of an extent decision?
a. Should workers receive overtime pay?
b. Should workers receive equity compensation?
c. How many workers should be hired?
d. Should workers earn commission? - answer✔How many workers should be hired?
You run a game-day shuttle service for parking services for the local ball club. Suppose you are
compensated $20 per customer, per ride. In other words, your marginal revenue is $20. Your
costs for different customer loads are summarized in the following table.
For each customer load, calculate both the marginal cost and the average cost. Then answer the
question that follows.
Note: Round your answers to the nearest cent.
A. Marginal Costs ($ per customer)
B. Average Costs ($ per customer)
C. In order to maximize profits, you should carry _____ customers per load. - answer✔A. 1 -
2 $4
3 $8
4 $12
5 $16
NOTE: The profit-maximizing number of customers occurs when marginal revenue equals
marginal cost.
Children in poor neighborhoods often have bleak outlooks on life and see little gain from
studying. In a recent experiment, children in poor neighborhoods were paid $100 for each A they
earned during a six-week grade reporting cycle.
Suppose a participant in this experiment was expending $0 worth of effort in studying for each
class before the experiment. Over the next 6 weeks, the student has a math class and an English
class, where getting an A in math would require the student to exert $88 worth of effort, while
getting an A in English would require the student to exert $105 worth of effort.
In this experiment, the student *(WOULD OR WOULD NOT)* increase time studying for math,
and the student *(WOULD OR WOULD NOT)* increase time studying for English. -
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