5. USAEO Behavioral and Applied Economics

Applied Decision Scenarios — Quiz

Test your understanding of applied decision scenarios with 5 practice questions.

Practice Questions

Question 1

A consumer is choosing between two goods: apples and oranges. The price of an apple is $2, and the price of an orange is $1. If the consumer has $10 to spend and wants to maximize utility, which bundle could be optimal assuming diminishing marginal utility and that the consumer values both goods equally?

Question 2

A firm is deciding between two projects. Project A has a 50% chance of yielding $200 and a 50% chance of yielding $100. Project B has a 100% chance of yielding $140. Which project should the firm choose if it is risk-neutral?

Question 3

A company must decide how much to produce. The marginal cost of producing each unit is constant at $5. The market price is $8. If the company is maximizing profit, how many units should it produce, assuming no capacity constraints?

Question 4

A student is deciding how to allocate time between studying for economics and math. Studying economics provides a marginal benefit of $10 per hour, while studying math provides a marginal benefit of $8 per hour. If the marginal cost of studying either subject is the same, what should the student do to maximize total benefit?

Question 5

A firm faces a decision to invest in a new machine that costs $500. The machine will generate a net benefit of $600 in one year. If the interest rate is 10%, should the firm invest in the machine?