1. A restaurant currently has two cooks and ten waiters. Cooks
earn $20 an hour and waiters earn $10 an hour. The last cook added
40 meals served to total output, while the last waiter added 20
meals served to total output. In order to maximize the number of
meals served with a fixed budget, the manager should
a. should use more waiters and fewer cooks because productivity per dollar is higher for waiters than for cooks.
b. should use more waiters and fewer cooks because waiters are paid less than cooks.
c. should use more cooks and fewer waiters because cooks are more productive than waiters.
d. continue to use two cooks and ten waiters because cost is minimized for the given amount of output.
2. Suppose that you run a house-painting company and currently
have 2 workers painting a total of 4 houses per month. If you hire
a third worker, 6 houses can be painted per month. If you hire a
fourth worker, 9 houses can be painted, and a fifth and sixth
worker will increase the number of houses painted to 13 and 15,
respectively. Diminishing returns
a. set in when the fourth worker is hired.
b. set in when the fifth worker is hired.
c. set in when the sixth worker is hired.
d. have not yet set in because output is still increasing
3. Use the following table to answer this question.
Price Total Revenue
Demand is unit elastic when quantity demanded changes from
a. 10 to 9.
b. 9 to 8.
c. 8 to 7.
d. There is not enough information given to determine the correct answer.
4. Using the midpoint method, the price elasticity of demand for
a good is computed to be approximately 0.75. Which of the following
events is consistent with a 10 percent decrease in the quantity of
the good demanded?
a. an increase in the price of the good from $10 to $17.50
b. an increase in the price of the good from $7.50 to $10
c. a 13.33 percent increase in the price of the good
d. a 7.5 increase in the price of the good
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