LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
11. Constrained optimization occurs when:
a) An individual makes choices that are influenced by his/her parents and
family.
b) An individual makes choices that best suit his/her preferences.
c) Firms choose the best products to meet their client’s needs.
d) An individual is forced to choose between competing alternatives
subject to some limitation such as budgetary considerations.
Ans: D
Difficulty: Easy
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
12. The three tools used repeatedly in microeconomic analysis are:
a) unconstrained optimization, comparative equilibrium, equilibrium
statics.
b) opportunity cost, scarce resources, shifting equilibrium.
c) restricted analysis, constrained equilibrium, optimization.
d) constrained optimization, equilibrium analysis, comparative statics.
Ans: D
Difficulty: Easy
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
13. An example of constrained optimization would be
a) a firm trying to maximize its profits subject to its budget constraint.
b) a ball coming to rest at the bottom of a cup.
c) an analysis of how market prices change when supply conditions
change.
d) An analysis of the effect of facilitating internet trading on market
price.
4
Ans: A
Difficulty: Easy
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
14. A manager cares about the number of workers under her command. She can
choose between two projects: Project A allows her to hire workers who must
be paid W A each, Project B allows her to hire workers who must be paid W B
each. She is allocated a budget of $100 that she can allocate to either project.
Which of the following accurately represents the manager’s problem?
a) The objective function is Max (N A +N B ), where N i is the number of
workers on project i (i = A, B); the constraint is W A N A + W B N B ≤
$100, where W i is the wage on project i (i = A, B).
b) The objective function is Max (N), where N is the number of workers
under the manager’s control; the constraint is W A + W B ≤ $100,
where W i is the wage on project i (i = A, B).
c) The objective function is Max (W A N + W B N), where N is the number
of workers and W i is the wage of the worker on project i (i = A, B); the
constraint is W A + W B ≤ $100.
d) Max (B/N), where B is the manager’s budget and N is the number of
workers under the manager’s command; the constraint is W A N + W B N
≤ $100.
Ans: A
Difficulty: Medium
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
15. Which of the following is not typically found in a constrained optimization
problem?
a) Resource constraint
b) Endogenous variable
c) Comparative statics analysis
d) Objective function
Ans: C
Difficulty: Easy
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
5
16. Which of the following is an example of a constraint?
a) L+W
b) Max LW
c)
min AB
d) L + W ≥ 5
Ans: D
Difficulty: Medium
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
17. Which of the following is the best example of a consumer’s objective
function?
a) profits.
b) consumption.
c) satisfaction
d) budget constraint.
Ans: C
Difficulty: Easy
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
18. Suppose the price of A is $3, the price of B is $5, the consumer’s income is
$30, and the consumer’s level of satisfaction is measured by A
B
. The
consumer’s income constraint is
a)
max 3 5 A B
b)
max A B
c)
30 A B
d)
3 5 30 A B
Ans: D
Difficulty: Medium
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
6
19. Suppose a consumer’s level of satisfaction is given by AB 2 and he/she has a
total of $10 to spend on goods A and B. If the price of A is $1 and the price of