ECO 365 Exam Guide: Business and Profit Maximization

ECO 365 Final Exam Answer Guide for Profit Maximization

Personal choice is the fundamental driver of all economic activity. Let’s take a look at some of topics that center around the concept of personal choice. 

Penelope recently started a printing business in Duluth

Penelope has recently started a printing business in Duluth. She had to pay a fee to obtain a trade license from the Minnesota government and took a loan from the local bank to purchase inkjet printers, laser printers, and screen printers. She employs 20 workers who are paid a wage of $30 per hour. She is also a trained ballet dancer who used to earn an average of $50,000 a year. Penelope’s implicit cost of running the business is:

the amount she used to earn as a ballet dancer

Explanation: The key word here is “implicit”. An implicit cost is the opportunity that a person will forgo when starting a business, which is usually their salary from a past career.

Market for Wheat in Zenetia

The exhibit given below shows the market for wheat in Zenetia. At a price of p, the profit-maximizing quantity for a wheat producer is:

The exhibit given below shows the market for wheat in Zenetia. At a price of p, the profit-maximizing quantity for a wheat producer is:

The exhibit given below shows the market for wheat in Zenetia. At a price of p, the profit-maximizing quantity for a wheat producer is:

Q1

Explanation: The goal is to find the quantity on the x-axis with the lowest costs, before its costs start exceeding price – this is how profit maximization works in economics. In this case, an output to Q1 would generate the maximum number of profits for the firm.

Should Bryan give up his job as a software programmer?

Bryan is trying to decide whether he should give up his job as a software programmer and invest in a start-up. Bryan earns an annual salary of $80,000 and has a saving of $50,000. The start-up would require an initial investment of $600,000. Bryan plans to take a loan from Trust Bank, a local commercial bank, which charges an interest rate of 5 percent on loans and provides an interest of 7 percent on savings deposits. Which of the following is true in this case?

percent interest that Bryan could have earned on his savings will be included in the calculation of his economic profit

Melanie’s Budget Constraint

The exhibit given below shows Melanie’s budget constraint for two goods, wine and cheese. The slope of the budget constraint equals

The exhibit given below shows Melanie's budget constraint for two goods, wine and cheese. The slope of the budget constraint equals

The exhibit given below shows Melanie’s budget constraint for two goods, wine and cheese. The slope of the budget constraint equals

3/2

Explanation: This problem can be solved by taking the “rise over run” of the chart, which is 60/40, or simplified to 3/2.

 
  • Student: Sandy Lopez
  • Textbook:  Principles of Microeconomics
  • Course: ECO 365 Microeconomics 2017 Final Exam
 

Explore all ECO365 Final Exam Topics

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