The following accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase.CPU GHzTotal BenefitMarginal BenefitTotal CostMarginal Costs2.0$1,000 $900 2.5$1,400 $1003.0 $300$1,200 3.5$1,900 $1,500 4.0$2,000 $400 The total cost of a 2.5GHz computer is:
A. $200.
B. $1,000.
C. $900.
D. $100.
Answer: B
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The manager of a firm receives an engineering report claiming that an additional hour of capital would add twice as much output as would an additional hour of labor. According to the firm's accountants, an hour of capital costs 3 times more than an hour of labor.
(i) Is the firm on its expansion path? Why or why not? (ii) Suppose the firm is under contractual obligations to keep its output at current levels. What long-run adjustment (if any) should the manager make in the firm's employment of labor and capital? (iii) Sketch an isoquant-isocost diagram that illustrates the situation described in part ii. Label the initial situation "A" and the post-adjustment situation "B." The scale of your diagram does not need to be accurate.
What is one reason car insurance seems much cheaper than health insurance?
A) Health insurance entails more idiosyncratic than systematic risk, and therefore the gains to diversification are more dramatic. B) Car insurance entails more systematic than idiosyncratic risk, and therefore the gains to diversification are more dramatic. C) Health insurance entails more systematic than idiosyncratic risk, and therefore there are fewer gains to diversification. D) Health insurance is manipulated through market power, and car insurance is not.
The fixed cost curve:
A. is steep when output levels are low, then flattens as output increases. B. is flatter when output levels are low, then gets steeper as output increases. C. is a constant, flat line. D. is a constant, vertical line.
If marginal cost is greater than marginal revenue
A. the firm should expand output. B. the firm should contract output. C. the firm should hold output constant. D. there is no way to determine if the firm should expand output, contract output, or hold output constant.