Ten Principles of Economics 41
59. Consider Mandy’s decision to go to college. If she goes to college, she will spend $20,000 on
tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will
earn $18,000 working in a store and spend $8,000 on room and board. Mandy’s cost of going to
college is
a. $32,000.
b. $42,000.
c. $50,000.
d. $58,000.
60. Consider Noah’s decision to go to college. If he goes to college, he will spend $80,000 on tuition,
$15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn
$22,000 working in a store and he will spend $13,000 on room and board. Noah’s cost of going to
college is
a. $99,000.
b. $103,000.
c. $108,000.
d. $121,000.
42 Ten Principles of Economics
61. Consider Paul’s decision to go to college. If he goes to college, he will spend $90,000 on tuition,
$15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn
$22,000 working at a construction job and he will spend $11,000 on room and board. Paul’s cost of
going to college is
a. $96,000.
b. $110,000.
c. $114,000.
d. $123,000.
62. If Faith attends college, it will take her four years, during which time she will earn no income. She
will pay $50,000 for tuition, $12,000 for room and board, and $5,000 for books. If she spends the
four years working rather than attending college, she will pay $18,000 for room and board, pay no
intuition, and buy no books. Based on this information, Faith’s economic cost of attending college
would be $67,000 if, over the four years, she could earn
a. $12,000 instead of attending college.
b. $14,000 instead of attending college.
c. $16,000 instead of attending college.
d. $18,000 instead of attending college.
Ten Principles of Economics 43
63. Maureen’s college raises the cost of room and board per semester. This increase raises
Maureen’s opportunity cost of attending college
a. even if the amount she would have to pay for room and board if she didn’t attend college rose
by the same amount. An increase in opportunity cost reduces Maureen’s incentive to attend
college.
b. even if the amount she would have to pay for room and board if she didn’t attend college rose
by the same amount. An increase in opportunity cost increases Maureen’s incentive to attend
college.
c. only if the amount she would have to pay for room and board if she didn’t attend college rose
by less than the increase in the amount her college charges. An increase in opportunity cost
reduces Maureen’s incentive to attend college.
d. only if the amount she would have to pay for room and board if she didn’t attend college rose
by less than the increase in the amount her college charges. An increase in opportunity cost
increases Maureen’s incentive to attend college.
64. When calculating the cost of college, which of the following should you probably not include?
a. The cost of tuition
b. The cost of books required for college classes
c. The income you would have earned had you not gone to college
d. The cost of rent for your off-campus apartment.
44 Ten Principles of Economics
65. When calculating the cost of college, which of the following should you probably include?
a. The cost of your meal plan for the cafeteria.
b. The cost of books required for college classes
c. The income you earn at your part-time job.
d. The cost of living in the dormitory.
66. Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a
campus parking lot.
a. The cost of the parking permit is not part of the opportunity cost of attending college if you
would not have to pay for parking otherwise.
b. The cost of the parking permit is part of the opportunity cost of attending college if you would
not have to pay for parking otherwise.
c. Only half of the cost of the parking permit is part of the opportunity cost of attending college.
d. The cost of the parking permit is not part of the opportunity cost of attending college under any
circumstances.
Ten Principles of Economics 45
67. You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an
attraction you hadn’t known about, but would really like to see. In computing the opportunity cost
of visiting this attraction you had not planned to visit, you should include
a. both the cost of driving the first 800 miles and the next 15 miles.
b. the cost of driving the first 800 miles, but not the cost of driving the next 15 miles.
c. the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.
d. neither the cost of driving the first 800 miles nor the cost of driving the next 15 miles.
68. Barb’s aunt gave her $100 for her birthday with the condition that Barb buy herself something. In
deciding how to spend the money, Barb narrows her options down to four choices: Option A,
Option B, Option C, and Option D. Each option costs $100. Finally she decides on Option B. The
opportunity cost of this decision is
a. the value to Barb of the option she would have chosen had Option B not been available.
b. the value to Barb of Options A, C and D combined.
c. the average of the values to Barb of Options A, C, and D.
d. $100.
46 Ten Principles of Economics
69. College-age athletes who drop out of college to play professional sports
a. are not rational decision makers.
b. are well aware that their opportunity cost of attending college is very high.
c. are concerned more about present circumstances than their future.
d. underestimate the value of a college education.
70. A rational decisionmaker
a. ignores marginal changes and focuses instead on “the big picture.”
b. ignores the likely effects of government policies when he or she makes choices.
c. takes an action only if the marginal benefit of that action exceeds the marginal cost of that
action.
d. takes an action only if the combined benefits of that action and previous actions exceed the
combined costs of that action and previous actions.
Ten Principles of Economics 47
71. In the context of decisionmaking, the word “marginal” is most closely associated with the word
a. “unimportant.”
b. “slow.”
c. “edge.”
d. “irrational.”
72. A rational decision maker takes an action only if the
a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. average benefit is greater than the average cost.
d. marginal benefit is greater than both the average cost and the marginal cost.
48 Ten Principles of Economics
73. A rational decisionmaker takes an action if and only if
a. the marginal benefit of the action exceeds the marginal cost of the action.
b. the marginal cost of the action exceeds the marginal benefit of the action.
c. the marginal cost of the action is zero.
d. the opportunity cost of the action is zero.
74. Rational people make decisions at the margin by
a. following marginal traditions.
b. behaving in a random fashion.
c. thinking in black-and–white terms.
d. comparing marginal costs and marginal benefits.
Ten Principles of Economics 49
75. Rational people make decisions “at the margin” by comparing
a. average costs and benefits.
b. total costs and benefits.
c. additional costs and benefits.
d. opportunity costs and benefits.
76. Making rational decisions “at the margin” means that people
a. make those decisions that do not impose a marginal cost.
b. evaluate how easily a decision can be reversed if problems arise.
c. compare the marginal costs and marginal benefits of each decision.
d. always calculate the dollar costs for each decision.
50 Ten Principles of Economics
77. A marginal change is a
a. change that involves little, if anything, that is important.
b. large, significant adjustment.
c. change for the worse, and so it is usually a short-term change.
d. small, incremental adjustment.
78. People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an
extra bottle of water.
b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of
water.
c. producers of diamonds have a much greater ability to manipulate diamond prices than
producers of water have to manipulate water prices.
d. water prices are held artificially low by governments, since water is necessary for life.
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79. It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company’s
cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001
pounds of steak then
a. its average cost is greater than its marginal cost.
b. its average cost and its marginal cost are equal.
c. its average cost is less than its marginal cost.
d. there is insufficient information to compute average and marginal costs.
80. The marginal benefit Kyra gets from eating a second sandwich is
a. the total benefit Kyra gets from eating two sandwiches minus the total benefit she gets from
eating one sandwich.
b. the same as the total benefit she gets from eating two sandwiches.
c. less than the marginal cost of eating the second sandwich since she chose to eat the second
sandwich.
d. the total benefit Kyra gets from eating three sandwiches minus the total benefit she gets from
eating two sandwiches.
52 Ten Principles of Economics
81. The marginal benefit Susie gets from purchasing a third pair of gloves is
a. the same as the total benefit she gets from purchasing three pairs of gloves.
b. more than the marginal cost of purchasing the third pair of gloves.
c. the total benefit she gets from purchasing three pairs of gloves minus the total benefit she gets
from purchasing two pairs of gloves.
d. the total benefit she gets from purchasing four pairs of gloves minus the total benefit she gets
from purchasing three pairs of gloves.
82. A rational decision maker takes an action if and only if
a. the average benefit of the action exceeds the average cost.
b. the average cost of the action exceeds the average benefit.
c. the marginal benefit of the action exceeds the marginal cost.
d. the marginal cost of the action exceeds the marginal benefit.
Ten Principles of Economics 53
83. Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the
second banana
a. can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total
benefit she would have enjoyed by eating just the first banana.
b. determines Ashley’s marginal cost of the first and second bananas.
c. does not depend on how many bananas Ashley has already eaten.
d. cannot be determined unless we know how much she paid for the bananas.
84. After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break
destination this year. However, Spring Break is still months away, and you may reverse this
decision. Which of the following events would prompt you to reverse this decision?
a. The marginal benefit of going to Cancun increases.
b. The marginal cost of going to Cancun decreases.
c. The marginal benefit of going to Ft. Lauderdale decreases.
d. The marginal cost of going to Ft. Lauderdale decreases.
54 Ten Principles of Economics
85. After much consideration, you have chosen Ireland over Spain for your Study Abroad program
next year. However, the deadline for your final decision is still months away and you may
reverse this decision. Which of the following events would prompt you to reverse this decision?
a. The marginal benefit of going to Spain increases.
b. The marginal cost of going to Spain increases.
c. The marginal benefit of going to Ireland increases.
d. The marginal cost of going to Ireland decreases.
86. A barber currently cuts hair for 50 clients per week and earns a profit. He is considering
expanding his operation in order to serve more clients. Should he expand?
a. Yes, because cutting hair is profitable.
b. No, because he may not be able to sell more services.
c. It depends on the marginal cost of serving more clients and the marginal revenue he will earn
from serving more clients.
d. It depends on the average cost of serving more clients and the average revenue he will earn
from serving more clients.
Ten Principles of Economics 55
87. The Get-There-Safe Bus company incurs an average cost of $45 for each passenger it carries on
its trip from Atlanta to Chattanooga. In advance of a particular trip, four seats remain unsold. The
bus company could increase its profit only if it
a. charged any ticket price above $0 for the four remaining seats.
b. charged at least $11.25 for each of the four remaining seats.
c. charged at least $45 for each of the four remaining seats.
d. paid four people to occupy the four remaining seats.
88. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats
on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to
pay $300, the airline should
a. sell the ticket because the marginal benefit exceeds the marginal cost.
b. sell the ticket because the marginal benefit exceeds the average cost.
c. not sell the ticket because the marginal benefit is less than the marginal cost.
d. not sell the ticket because the marginal benefit is less than the average cost.
56 Ten Principles of Economics
89. Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats
on a flight. The average cost per seat is
a. $50.
b. $500.
c. $50,000.
d. This cannot be determined from the information given.
90. Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats
on a flight. The marginal cost of flying a passenger is
a. $50.
b. $500.
c. $50,000.
d. This cannot be determined from the information given.
Ten Principles of Economics 57
91. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats
on a flight. The airline should sell a ticket to a standby passenger only if the passenger is willing to
pay
a. more than $200.
b. more than $300.
c. more than $500.
d. This cannot be determined from the information given.
92. Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able
to sell the car for $5,800. Stephen discovers that he needs to do an additional $2,400 of work to
make the car worth $5,800 to potential buyers. He could also sell the car now, without completing
the additional work, for $3,800. What should he do?
a. He should sell the car now for $3,800.
b. He should keep the car since it wouldn’t be rational to spend $6,400 restoring a car and then
sell it for only $5,800.
c. He should complete the additional work and sell the car for $5,800.
d. It does not matter which action he takes since the outcome will be the same either way.
58 Ten Principles of Economics
93. Bill is restoring a car and has already spent $4,000 on the restoration. He expects to be able to
sell the car for $6,200. Bill discovers that he needs to do an additional $2,400 of work to make
the car worth $6,200 to potential buyers. He could also sell the car now, without completing the
additional work, for $3,800. What should he do?
a. He should sell the car now for $3,800.
b. He should keep the car since it wouldn’t be rational to spend $6,400 restoring a car and then
sell it for only $6,200.
c. He should complete the additional work and sell the car for $6,200.
d. It does not matter if Bill sells the car now or completes the work and then sells it at the higher
price because the outcome will be the same either way.
94. Cole is refinishing an antique china cabinet and has already spent $180 on the restoration. He
expects to be able to sell the cabinet for $360. Cole discovers that he needs to do an additional
$200 worth of work to make the cabinet worth $360 to potential buyers. He could also sell the
cabinet now, without completing the additional work, for $100. What should Cole do?
a. He should sell the cabinet now for $100.
b. He should keep the cabinet since it wouldn’t be rational to spend $380 restoring a cabinet and
then sell it for only $360.
c. He should complete the additional work and sell the cabinet for $360.
d. It does not matter which action he takes since the outcome will be the same either way.
Ten Principles of Economics 59
95. Katie is planning to sell her house, and she is considering making two upgrades to the house before
listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her
$9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new
roof to increase the value of her house by $7,000.
a. She should make both improvements to her house.
b. She should replace the carpeting but not replace the roof.
c. She should replace the roof but not replace the carpeting.
d. She should not make either improvement to her house.
96. Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking
the third soda
a. can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total
benefit she would have enjoyed by drinking just two sodas.
b. determines Bridget’s willingness to pay for the third soda.
c. is likely different from the marginal benefit provided to Bridget by the second soda.
d. All of the above are correct.
60 Ten Principles of Economics
97. A construction company has built 30 houses so far this year at a total cost to the company of $7.5
million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of
the following statements is correct?
a. For the first 30 houses, the average cost per house was $250,000.
b. The marginal cost of the 31st house, if it is built, will be $260,000.
c. If the company can experience a marginal benefit of $275,000 by building the 31st house, then
the company should build it.
d. All of the above are correct.
98. Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of
$4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million.
Which of the following statements is correct?
a. For the first 24 houses, the average cost per house was $205,000.
b. The marginal cost of the 25th house, if it is built, will equal $250,000.
c. If the company can sell the 25th house for at least $202,000, then it should build it.
d. All of the above are correct.