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Page 1
1.
Jacquelyn is a student at a major state university. Which of the following is NOT an
explicit cost of her attending college?
A)
tuition
B)
textbooks
C)
the salary that she could have earned working full-time
D)
computer lab fees
2.
Which of the following statements about opportunity cost is FALSE?
A)
Opportunity cost may be larger than monetary cost.
B)
Opportunity cost includes both explicit and implicit costs.
C)
The real or opportunity cost of something is what you must give up to get it.
D)
Opportunity cost is synonymous with explicit cost.
3.
After earning your BA, you have to decide whether to take a job that will pay you
$45,000 per year or spend an additional two years earning an MBA. If you decide to
pursue the graduate degree, your annual expenses for tuition, books, board, and lodging
will be $32,000. You have been offered a scholarship for $10,000 per year, but to pay
the remaining $22,000 per year, you would have to cash in savings bonds from your
grandparents that have been earning $500 in interest per year. The annual opportunity
cost of earning your MBA is:
A)
$67,500.
B)
$77,000.
C)
$99,000.
D)
$77,500.
4.
Money that must be paid for the use of factors of production such as labor and capital is
an:
A)
explicit cost.
B)
accounting profit.
C)
implicit cost.
D)
economic profit.
5.
Costs that are included in the economic concept of cost but that are NOT explicit costs
are:
A)
outlay costs.
B)
accounting profits.
C)
implicit costs.
D)
economic profits.
Page 2
6.
Expenses associated with factors of production may be _____ costs.
A)
implicit
B)
opportunity
C)
explicit
D)
implicit, opportunity, or explicit
7.
Accountants use only _____ costs in their computations.
A)
opportunity
B)
implicit
C)
explicit
D)
variable
8.
You own a small deli that sells sandwiches, salads, and soup. Which of the following is
an implicit cost of the business?
A)
wages paid to part-time employees
B)
the job offer you did not accept at a local catering service
C)
bread, meat, and vegetables used to produce the items on your menu
D)
your monthly utility bill
9.
The implicit cost of capital is:
A)
the expense associated with leasing machines.
B)
the expense associated with buying machines.
C)
the opportunity cost of capital used by a business.
D)
irrelevant for determining economic profit.
10.
Suppose the Chicago Cubs could rent out Wrigley Field (the field they play on) to local
youth leagues for $11,000 per month. The $11,000 per month is the _____ cost of
capital.
A)
implicit
B)
explicit
C)
direct
D)
total
11.
In central Florida, the demand for real estate has been increasing rapidly for years.
Therefore, the _____ cost of capital is _____ in central Florida's orange groves.
A)
explicit; decreasing
B)
implicit; increasing
C)
implicit; decreasing
D)
explicit; increasing
Page 3
12.
Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in
Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery
studio. This means her husband is claiming that she incurred _____ in _____ costs.
A)
$86,004; implicit
B)
$43,002; implicit
C)
$43,002; explicit
D)
$86,004; explicit
13.
Accounting profit differs from economic profit because:
A)
of differences in the manner in which revenue is calculated.
B)
economic costs include explicit costs, while accounting costs do not.
C)
accounting costs are generally higher than economic costs because accounting
costs include explicit and implicit costs, while economic costs include only explicit
costs.
D)
economic costs are generally higher than accounting costs because economic costs
include all opportunity costs, while accounting costs include explicit costs only.
14.
If the accounting profit for a firm is negative:
A)
the economic profit must be positive.
B)
the economic profit must be negative.
C)
the firm should produce more.
D)
the firm will not owe any taxes.
15.
Suppose a local hardware store has explicit costs of $2 million per year and implicit
costs of $44,000 per year. If the store earned an economic profit of $50,000 last year,
this means that the store's accounting profit equaled:
A)
$94,000.
B)
$6,000.
C)
$2.05 million.
D)
$2.044 million.
16.
Part of the _____ associated with the Chicago Cubs baseball team is their batting cages
used in practice.
A)
labor
B)
land
C)
capital
D)
entrepreneurship
Page 4
17.
For most firms, economic profit is:
A)
less than accounting profit.
B)
equal to accounting profit.
C)
greater than accounting profit.
D)
negative.
18.
Profit computed without implicit costs is _____ profit.
A)
explicit
B)
accounting
C)
implicit
D)
economic
19.
The implicit cost of capital is:
A)
the explicit cost of capital that the firm might have used but didn't need to.
B)
depreciation.
C)
the opportunity cost of the capital used by a business.
D)
the cost of human capital.
20.
Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of
$50,000 per year. If the store earned an economic profit of $50,000 last year, the store's
accounting profit equaled:
A)
$10,000.
B)
$50,000.
C)
$100,000.
D)
$200,000.
21.
The dormitories of Eastland College are part of its:
A)
land.
B)
labor.
C)
capital.
D)
explicit costs.
22.
Suppose Eastland College does not have a summer program and could rent out the
campus to various summer sports camps for $100,000. The potential revenue of the
summer camps represents:
A)
an implicit cost of capital.
B)
an explicit cost.
C)
a total cost.
D)
a sunk cost.
Page 5
23.
The costs economists use in the concept of economic profit are:
A)
accounting costs.
B)
strictly dollar costs, not opportunity costs.
C)
only implicit costs.
D)
accounting costs and implicit costs (i.e., the value of the best opportunity forgone).
24.
Economic profit is:
A)
less than accounting profit if implicit costs exist.
B)
always equal to accounting profit.
C)
greater than accounting profit if implicit costs exist.
D)
less than accounting profit if implicit costs are zero.
25.
Profit is the difference between _____ and _____.
A)
total sales; total revenues
B)
total profits; total costs
C)
total revenues; total costs
D)
marginal costs; marginal revenues
26.
Accountants use only _____ costs in their computations of short-run total cost.
A)
opportunity
B)
implicit
C)
explicit
D)
variable
27.
Which of the following best describes a “how much” decision?
A)
Should I drive to work or ride my bicycle?
B)
Should I rent a movie or watch a baseball game on television?
C)
Should I attend graduate school or immediately enter the labor force?
D)
Should I buy a third hot dog?
28.
An “either–or” decision entails:
A)
deciding how much of an activity to do.
B)
a choice between two activities.
C)
calculating marginal costs for each activity.
D)
calculating the marginal benefits for each activity.
Page 6
29.
In making an “either–or” decision:
A)
choose the activity that results in the greater economic profit.
B)
choose the activity that results in the greater accounting profit.
C)
continue in an activity as long as the marginal cost is greater than the marginal
benefit.
D)
continue in an activity as long as the marginal cost is less than the marginal benefit.
30.
Which of the following is an “either–or” decision?
A)
Allen must decide how many courses to take this semester.
B)
Sally must decide how many hours to spend studying for each of the four courses
that she is taking this semester.
C)
Chris must decide how many hours to work each week at his part-time job.
D)
Dylan must decide whether to major in economics or finance.
31.
Which of the following is a “how much” decision?
A)
Mary is trying to decide whether to go to work or go to college after she graduates
from high school next month.
B)
Andrea is trying to decide whether to go to graduate school in economics or go to
law school.
C)
Tim is trying to decide the amount of money to save each month to buy a new car
next year.
D)
Andy is trying to decide whether to take a prep course for the Law School
Admissions Test.
32.
You decide to quit your $60,000-per-year job as an information technology specialist
and illustrate children's books. At the end of the first year of illustrating, you have
earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the
first year as an illustrator is:
A)
$15,000.
B)
$20,000.
C)
–$40,000.
D)
–$45,000.
Page 7
33.
During its only year of operation, a firm collected $175,000 in revenue and spent
$50,000 on raw materials, labor, and utilities. The owners of the firm spent $100,000 of
their own money to build the firm's factory (instead of buying bonds and earning a 10%
annual rate of return), which they sold at the end of the year for $100,000. The firm's
economic profit is:
A)
$35,000.
B)
$125,000.
C)
$115,000.
D)
$25,000.
34.
Until recently Rosemarie worked as an accountant, earning $30,000 annually. Then she
inherited a piece of commercial real estate that had been renting for $12,000 annually.
Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she
inherited. At the end of the first year, her books showed total revenues of $260,000 and
total costs of $230,000 for food, utilities, cooks, and other supplies. Her economic profit
at the end of one year is:
A)
$230,000.
B)
$30,000.
C)
$0.
D)
–$12,000.
35.
George owns a dude ranch in Texas. He pays $32,000 per year in insurance, $408,000 in
wages, and $23,000 in supplies. He forgoes $32,000 per year he could make as a police
officer. His total revenue last year equaled $460,000. That means his economic _____
equaled _____.
A)
profit; $3,000
B)
losses; $3,000
C)
losses; $35,000
D)
profit; $35,000
36.
Bessie wants to calculate the accounting and economic profits of her cattle farm in
Nebraska. She pays $30,000 per year in overhead, $80,000 in wages, and $20,000 in
insurance. She forgoes $30,000 per year that she could make as a teacher. If her total
revenue equals $140,000, that means her accounting profit is _____ and her economic
profit is _____.
A)
$10,000; –$20,000
B)
$30,000; –$30,000
C)
–$10,000; –$10,000
D)
$60,000; $30,000
Page 8
Use the following to answer questions 37-41:
Scenario: Accounting and Economic Profit
Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each
year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker
Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker
furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the
capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first
year, his revenue was $150,000.
37.
(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and
Economic Profit. The accounting profit of Wang's Wicker Furniture Store is:
A)
$200,000.
B)
$60,000.
C)
$30,000.
D)
$0.
38.
(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and
Economic Profit. The implicit cost of capital for Wang's Wicker Furniture Store is:
A)
$0.
B)
$2,000.
C)
$5,000.
D)
$50,000.
39.
(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and
Economic Profit. What is the opportunity cost of Wang's $100,000 inheritance being
used to start his business?
A)
$0
B)
$5,000
C)
$10,000
D)
$100,000
40.
(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and
Economic Profit. What is the implicit cost of Wang's Wicker Furniture Store?
A)
$7,000
B)
$60,000
C)
$65,000
D)
$69,000
Page 9
41.
(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and
Economic Profit. The economic profit of Wang's Wicker Furniture Store is:
A)
$67,000.
B)
$0.
C)
–$20,000.
D)
–$35,000.
42.
Andreas is a political consultant with his own firm. He travels the country and provides
campaign advice for political candidates. Last year he earned $250,000 in revenue for
his services. He pays one employee $50,000 to manage the small office back home and
pays $30,000 on rent and utilities for that office. His accountant tells him that if he sold
all of the equipment, he could put that money in the bank and earn $3,000 in interest
next year. Andreas also has received an offer to teach political science at a college at a
salary of $100,000. Andreas's accounting profit is equal to _____ and his economic
profit is equal to _____.
A)
$175,000; $67,000
B)
$170,000; $67,000
C)
$200,000; $72,000
D)
$170,000; $70,000
43.
The amount by which an additional unit of an activity increases total benefit is:
A)
net benefit.
B)
marginal benefit.
C)
marginal cost.
D)
utility.
44.
The amount by which an additional unit of an activity increases total cost is:
A)
net benefit.
B)
marginal benefit.
C)
negative benefit.
D)
marginal cost.
45.
In economics, a marginal value refers to:
A)
the value associated with an unimportant, or marginal, activity.
B)
a value entered as an explanatory item in the margin of a balance sheet or other
accounts.
C)
the value associated with one more unit of an activity.
D)
a value that is most appropriately identified in a footnote.
Page 10
46.
In economic analysis, the principle of marginal analysis refers to:
A)
dividing large problems into smaller, more manageable ones.
B)
the notion that a group's problems can be effectively analyzed by focusing on only
a small subsample of the group.
C)
the result that the optimal quantity of an activity is that at which marginal benefit is
equal to marginal cost.
D)
the result that the optimal quantity of an activity is that at which the net benefit of
the representative, or marginal, individual is maximized.
47.
For which of the following decisions would marginal analysis be relevant?
A)
spending $1,000 on a summer vacation or on painting your house
B)
deciding how much to spend on a summer vacation
C)
buying a new car or a second-hand car
D)
eating dinner at home or going out to a restaurant for dinner
48.
Marginal analysis is relevant for:
A)
both “either–or” and “how much” decisions.
B)
only “either–or” decisions.
C)
only “how much” decisions.
D)
only situations involving the time value of money.
49.
A “how much” decision is best made by comparing the _____ of an action to the _____
of that action.
A)
explicit costs; implicit costs
B)
accounting profit; economic profit
C)
marginal benefits; marginal costs
D)
present value; net present value
50.
Feng is thinking of mowing lawns over the summer. His friend Jason mows lawns, and
he says the marginal cost of mowing the fourth lawn in a day is $40. Feng thinks about
it and realizes that the total cost of mowing four lawns is:
A)
$160.
B)
$40.
C)
$80.
D)
not possible to determine from the information provided.
Page 11
51.
Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four
slices for $5.00. The marginal cost of the third slice is:
A)
$4.50.
B)
$10.
C)
$1.
D)
$2.
Use the following to answer questions 52-54:
Figure: The Marginal Cost Curve
52.
(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The
total cost of mowing four lawns is approximately:
A)
$10.
B)
$15.
C)
$50.
D)
$100.
53.
(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The
approximate total cost of mowing seven lawns is:
A)
$175.
B)
$113.
C)
$50.
D)
$24.
Page 12
54.
(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The
total cost of mowing five lawns is approximately:
A)
$68.
B)
$100.
C)
$50.
D)
$10.
55.
The _____ is the amount by which an additional unit of activity increases its total cost.
A)
marginal cost
B)
average cost
C)
average profit
D)
marginal benefit
56.
The amount by which an additional unit of an activity increases total cost is:
A)
net benefit.
B)
marginal benefit.
C)
negative benefit.
D)
marginal cost.
Use the following to answer questions 57-61:
57.
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of the second sweatshirt is:
A)
$9.
B)
$20.
C)
$11.
D)
$29.
Page 13
58.
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of the third sweatshirt is:
A)
$33.
B)
$13.
C)
$11.
D)
$9.
59.
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of the fourth sweatshirt is:
A)
$9.
B)
$20.
C)
$24.
D)
$15.
60.
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of the fifth sweatshirt is:
A)
$17.
B)
$15.
C)
$13.
D)
$11.
61.
(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts.
The marginal cost of producing sweatshirts is an example of ______ marginal costs.
A)
decreasing
B)
increasing
C)
constant
D)
random
62.
Constant marginal costs occur when production of each individual unit costs:
A)
less than the previous one.
B)
more than the previous one.
C)
the same as the previous one.
D)
more than the next one.
63.
Learning effects often result in _____ marginal costs.
A)
decreasing
B)
increasing
C)
constant
D)
random
Page 14
64.
Tara notices that studying for one hour after class increases her economics grade by 11
points. The second hour yields a 7-point gain, the third hour yields a 4-point gain, and
the fourth hour yields only a 1-point gain. This means that the marginal _____ of
studying decreases with study hours.
A)
cost
B)
benefit
C)
opportunity cost
D)
time
65.
Marginal benefit:
A)
is the subsidiary benefit from an activity; for example, the main benefit from
weight training is an increase in muscle mass, and the subsidiary or marginal
benefit might be a reduction in cholesterol.
B)
is the addition to total benefit due to undertaking one more unit of an activity.
C)
must be increasing if total benefit is increasing.
D)
normally increases as more of an activity is undertaken.
66.
Wendy sells ice-making machines. She can sell six per week at a price of $2,000 per
machine. If she charges $2,100 per machine, she will sell only five per week. The
marginal benefit of selling the sixth ice-making machine is:
A)
$2,000.
B)
$2,100.
C)
$12,000.
D)
$1,500.
Use the following to answer questions 67-69:
Figure: The Marginal Benefit Curve
Page 15
67.
(Figure: The Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve.
The total benefit of mowing four lawns is approximately:
A)
$25.
B)
$35.
C)
$80.
D)
$114.
68.
(Figure: The Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve.
The total benefit of mowing six lawns is approximately:
A)
$19.
B)
$35.
C)
$154.
D)
$200.
69.
(Figure: The Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve.
The total benefit of mowing seven lawns is approximately:
A)
$172.
B)
$140.
C)
$60.
D)
$18.
70.
The amount by which an additional unit of an activity increases total benefit is:
A)
net benefit.
B)
marginal benefit.
C)
marginal cost.
D)
utility.
71.
The _____ benefit is the amount by which an additional unit of an activity increases its
total benefit.
A)
average
B)
net
C)
marginal
D)
top
Page 16
Use the following to answer questions 72-75:
72.
(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of
Sweatshirts. The marginal benefit of producing the second sweatshirt is:
A)
$31.
B)
$16.
C)
$15.
D)
$14.
73.
(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of
Sweatshirts. The marginal benefit of producing the third sweatshirt is:
A)
$31.
B)
$16.
C)
$15.
D)
$14.
74.
(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of
Sweatshirts. The marginal benefit of producing the fourth sweatshirt is:
A)
$58.
B)
$14.
C)
$13.
D)
$12.
75.
(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of
Sweatshirts. The marginal benefit of producing the fifth sweatshirt is:
A)
$70.
B)
$14.
C)
$13.
D)
$12.
Page 17
76.
Whenever marginal benefit is less than marginal cost, the decision maker should do
_____ of the activity.
A)
less
B)
that exact amount
C)
more
D)
none
77.
In general, when marginal benefit is greater than marginal cost, the decision maker
should do _____ of the activity.
A)
less
B)
that exact amount
C)
more
D)
none
78.
Some highways have one lane; others have two, three, or more. If each lane costs $10
million per mile, an economist assumes that the total benefit of a three-lane highway
must be _____ million per mile.
A)
less than $10
B)
$10 to $20
C)
$20 to $30
D)
$30 or more
79.
While eating pizza, you discover that the marginal benefit of eating one more slice is
greater than the marginal cost of that slice. You conclude that:
A)
you will be better off if you eat one more slice.
B)
you will be no better off and no worse off if you eat one more slice.
C)
you will be worse off if you eat one more slice.
D)
the total cost of eating the pizza will be more than the total benefit of eating the
pizza.
80.
Joan loves sushi. Her first piece of sushi normally gives her a marginal benefit of $5.
Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her
favorite sushi bar charges $2.75 per piece of sushi, how many pieces should she eat?
A)
8
B)
10
C)
5
D)
11
Page 18
81.
Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four
slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit
from the second slice must be at least _____ and the marginal benefit from the third
slice must be less than _____.
A)
$3.50; $4.50
B)
$3.50; $1.00
C)
$1.50; $1.00
D)
$1.50; $4.50
82.
In economic analysis, at the optimal quantity of an activity:
A)
marginal benefit exceeds marginal cost by the greatest amount.
B)
total benefit exceeds total cost by the greatest amount.
C)
marginal benefit equals marginal cost.
D)
total benefit exceeds total cost by the greatest amount and marginal benefit equals
marginal cost.
83.
Werner installs custom sound systems in cars. If he installs seven systems per day, his
total costs are $300. If he installs eight systems per day, his total costs are $400. Werner
will install eight sound systems per day only if the eighth customer is willing to pay at
least:
A)
$300.
B)
$400.
C)
$100.
D)
$50.
84.
Suppose Bob has a part-time business washing cars. He has washed nine cars on a given
day; the marginal benefit of washing the tenth car is $20 and the marginal cost is $12.
Bob should:
A)
wash the tenth car.
B)
not wash the tenth car.
C)
increase his marginal benefit.
D)
There is not enough information to decide.
85.
To maximize her grade in economics, Stacey should study until:
A)
her marginal cost of studying begins to increase.
B)
her marginal benefit of studying begins to decrease.
C)
her marginal benefit of studying equals her marginal cost of studying.
D)
her marginal cost of studying reaches zero.
Page 19
86.
According to the profit-maximizing principle of marginal analysis, if the marginal
benefit is _____ the marginal cost, _____.
A)
more than; an activity should be reduced
B)
less than; an activity should be reduced
C)
equal to; an activity should be reduced
D)
more than; net benefit is maximized
87.
According to the profit-maximizing principle of marginal analysis, if the marginal
benefit is _____ the marginal cost, _____.
A)
more than; an activity should be reduced
B)
less than; an activity should be reduced
C)
equal to; an activity should be reduced
D)
more than; net benefit is maximized
88.
According to the profit-maximizing principle of marginal analysis, if the marginal
benefit is _____ the marginal cost, _____.
A)
more than; an activity should be reduced
B)
less than; an activity should be reduced
C)
equal to; an activity is being produced at the optimal quantity
D)
more than; net benefit is maximized
89.
In economics, the assumption is that consumers and firms will make choices that
maximize the _____ of each activity.
A)
total profit
B)
total benefit
C)
sum of total benefit and total cost
D)
product of total benefit and total cost
90.
To maximize total profit from a particular activity, consumers and firms evaluate each
activity at the:
A)
average.
B)
top.
C)
margin.
D)
end.
91.
Total profit is maximized when marginal benefit _____ marginal cost.
A)
is more than
B)
is less than
C)
is equal to
D)
approaches
Page 20
92.
In economics, maximization of the total profit of an activity occurs when:
A)
MB = MC.
B)
MB > MC.
C)
MB < MC.
D)
MB approaches MC.
93.
If at a given quantity _____, the decision maker should do _____ of the activity.
A)
MB < MC; that amount
B)
MB < MC; less
C)
MB > MC; less
D)
MB > MC; none
94.
If at a given quantity _____, the decision maker should do _____ of the activity.
A)
MB < MC; that amount
B)
MB < MC; more
C)
MB > MC; more
D)
MB > MC; none
95.
If at a given quantity MB = MC, the decision maker should do _____ of the activity.
A)
less
B)
that amount
C)
more
D)
none
96.
If the marginal benefit received from consuming a good is equal to the marginal cost of
production:
A)
society's well-being cannot be improved by changing production.
B)
society's well-being can be improved if production decreases.
C)
society's well-being can be improved if production increases.
D)
the market is producing too much of the good.
97.
If the marginal benefit received from consuming a good is less than the marginal cost of
production:
A)
society's well-being can be improved if production increases.
B)
society's well-being can be improved if production decreases.
C)
society's well-being cannot be improved by changing production.
D)
the market is producing too little of the good.
Page 21
98.
If the marginal benefit received from consuming a good is greater than the marginal cost
of production:
A)
society's well-being can be improved if production increases.
B)
society's well-being can be improved if production decreases.
C)
society's well-being cannot be improved by changing production.
D)
the market is producing too much of the good.
Use the following to answer questions 99-100:
99.
(Table: Marginal Analysis of Sweatshirt Production I) Look at the table Marginal
Analysis of Sweatshirt Production I. The optimal quantity of sweatshirts to produce is:
A)
two.
B)
three.
C)
four.
D)
five.
100.
(Table: Marginal Analysis of Sweatshirt Production I) Look at the table Marginal
Analysis of Sweatshirt Production I. The profit at the optimal quantity of sweatshirts is:
A)
$8.
B)
$12.
C)
$45.
D)
$70.
Page 22
Use the following to answer questions 101-102:
101.
(Table: Marginal Analysis of Sweatshirt Production II) Look at the table Marginal
Analysis of Sweatshirt Production II. The optimal quantity of sweatshirts to produce is:
A)
two.
B)
three.
C)
four.
D)
five.
102.
(Table: Marginal Analysis of Sweatshirt Production II) Look at the table Marginal
Analysis of Sweatshirt Production II. The profit at the optimal quantity of sweatshirts is:
A)
$15.
B)
$16.
C)
$48.
D)
$80.
103.
To determine the quantity of any activity that will maximize total profit, economists
employ the:
A)
average decision rule.
B)
total decision rule.
C)
principle of marginal analysis.
D)
principle of average analysis.
104.
The activities of consumers and firms:
A)
have benefits but not costs.
B)
have costs but not benefits.
C)
have both costs and benefits.
D)
are too complex to be analyzed with economic theory.
Page 23
Use the following to answer questions 105-109:
105.
(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed is
deciding how many football games he wants to attend this year. His marginal benefit
from increasing the number of games that he attends from two to three is:
A)
40.
B)
30.
C)
10.
D)
20.
106.
(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed is
deciding how many football games he wants to attend this year. If tickets to each
football game cost $10, then he should attend _____ game(s).
A)
0
B)
1
C)
2
D)
5
107.
(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed is
deciding how many football games he wants to attend this year. If tickets to each
football game cost $75, how many games should he attend?
A)
0
B)
1
C)
2
D)
5
Page 24
108.
(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed is
deciding how many football games he wants to attend this year. If the games are free,
how many games should he attend?
A)
1
B)
5
C)
7
D)
8
109.
(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit.
Rodger is deciding how many football games he wants to attend this year. Suppose
football tickets cost $10, but suppose too that the star player just got injured and will be
out for the season. As a result of the injury, Rodger's total benefit of attending any game
is now only 10% of the value shown in the table. In this case, how many games should
he attend?
A)
0
B)
1
C)
2
D)
6
Use the following to answer questions 110-113:
Figure: The Optimal Quantity
110.
(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the
marginal benefit of lawn mowing increased, the _____ curve in the figure would shift to
the _____ and the optimal quantity would be _____ five lawns mowed.
A)
marginal benefit; right; more than
B)
marginal cost; right; fewer than
C)
marginal benefit; left; fewer than
D)
marginal cost; left; more than
Page 25
111.
(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the
marginal benefit of lawn mowing decreased, the _____ curve in the figure would shift to
the _____ and the optimal quantity would be _____ five lawns mowed.
A)
marginal benefit; right; more than
B)
marginal cost; right; fewer than
C)
marginal benefit; left; fewer than
D)
marginal cost; left; more than
112.
(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the cost of
lawn mowing decreased for all quantities of lawns mowed, the _____ curve in the figure
would shift to the _____ and the total profit would _____.
A)
marginal benefit; right; increase
B)
marginal cost; right; increase
C)
marginal benefit; left; decrease
D)
marginal cost; left; decrease
113.
(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the cost of
lawn mowing increased for all quantities of lawns mowed, the _____ curve in the figure
would shift to the _____ and the total profit would _____.
A)
marginal benefit; right; increase
B)
marginal cost; right; increase
C)
marginal benefit; left; decrease
D)
marginal cost; left; decrease
Page 26
Use the following to answer questions 114-117:
Figure: Marginal Benefits and Marginal Costs
114.
(Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits
and Marginal Costs. More time spent studying economics adds points to economics
scores but (MB) subtracts points from accounting scores (MC). When Claudia studies
economics for four hours, the marginal benefit is _____ points; when she studies for six
hours, the marginal benefit is _____ points.
A)
20; 10
B)
30; 10
C)
20; 0
D)
20; 30
115.
(Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits
and Marginal Costs. More time spent studying economics adds points to economics
scores (MB) but subtracts points from accounting scores (MC). The marginal benefit of
studying economics for two hours is _____ points, and the marginal cost is _____
points.
A)
40; 0
B)
30; 10
C)
20; 20
D)
10; 30
Page 27
116.
(Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits
and Marginal Costs. More time spent studying economics adds points to economics
scores (MB) but subtracts points from accounting scores (MC). The marginal benefit of
studying economics for four hours is _____ points, and the marginal cost is _____
points.
A)
30; 30
B)
20; 10
C)
20; 20
D)
30; 10
117.
(Figure: Marginal Benefits and Marginal Costs) Look at the figure Marginal Benefits
and Marginal Costs. More time spent studying economics adds points to economics
scores (MB) but subtracts points from accounting scores (MC). At four hours of study,
Claudia will maximize her benefit from study time because:
A)
MB > MC.
B)
MB = 20 and MC = 5.
C)
the difference between total benefits and total costs is maximized.
D)
sunk costs are minimized.
Use the following to answer questions 118-122:
118.
(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the
table Expected Exam Scores from Studying Economics and Accounting. If you studied
for a total of three hours, your combined scores would be maximized by spending _____
hours studying economics.
A)
one
B)
two
C)
three
D)
four
Page 28
119.
(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the
table Expected Exam Scores from Studying Economics and Accounting. If you studied
for a total of three hours, your combined scores would be maximized by spending _____
hours studying accounting.
A)
zero
B)
one
C)
two
D)
three
120.
(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the
table Expected Exam Scores from Studying Economics and Accounting. If you studied
for a total of three hours and divided your time to maximize your combined scores, you
would expect your combined scores to be _____ points.
A)
145
B)
150
C)
155
D)
165
121.
(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the
table Expected Exam Scores from Studying Economics and Accounting. The
opportunity (or marginal) cost in terms of your accounting score of spending the first
hour studying economics is _____ points.
A)
0
B)
5
C)
10
D)
15
122.
(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the
table Expected Exam Scores from Studying Economics and Accounting. The marginal
benefit in terms of your economics score of spending the first hour studying economics
is _____ points.
A)
5
B)
10
C)
15
D)
20
Page 29
Use the following to answer questions 123-127:
123.
(Table: Tutoring) Look at the table Tutoring. Sigmund faces:
A)
increasing marginal benefit.
B)
decreasing marginal benefit.
C)
increasing marginal cost.
D)
constant marginal cost.
124.
(Table: Tutoring) Look at the table Tutoring. If he can charge all students their
willingness to pay, Sigmund's optimal number of tutoring hours is:
A)
five.
B)
four.
C)
three.
D)
two.
125.
(Table: Tutoring) Look at the table Tutoring. If he can charge all students their
willingness to pay, at the optimal hours of tutoring, Sigmund's total profit is:
A)
$60.
B)
$50.
C)
$30.
D)
$15.
Page 30
126.
(Table: Tutoring) Look at the table Tutoring. If the college requires all tutors to register
with the dean and charges each tutor $10 to register, Sigmund's optimal number of
tutoring hours will be:
A)
five.
B)
four.
C)
three.
D)
two.
127.
(Table: Tutoring) Look at the table Tutoring. If the college requires all tutors to register
with the dean and charges each tutor $10 to register and if Sigmund can charge all
students their willingness to pay, his total profit from tutoring will be:
A)
$10.
B)
$20.
C)
$30.
D)
$40.
Use the following to answer question 128:
128.
(Table: The Cost of Producing Gadgets) Look at the table The Cost of Producing
Gadgets. According to this table, the marginal cost is:
A)
increasing at a constant rate equal to $5.
B)
increasing at an increasing rate.
C)
increasing at a decreasing rate.
D)
constant and equal to $5.
Page 31
Use the following to answer question 129:
Table: The Benefit of Producing Gadgets
Quantity of Gadgets
Total Benefit
0
$ 0
1
200
2
215
3
225
4
230
5
233
129.
(Table: The Benefit of Producing Gadgets) Look at the table The Benefit of Producing
Gadgets. The marginal benefit of consuming gadgets is:
A)
constant and equal to $5.
B)
decreasing at a constant rate of $5.
C)
decreasing at a decreasing rate.
D)
increasing at a decreasing rate.
Use the following to answer question 130:
Table: The Cost and Benefit of Producing Gadgets
Quantity of Gadgets
Total Cost
Total Benefit
0
$100
$ 0
1
105
200
2
110
215
3
115
225
4
120
230
5
125
233
130.
(Table: The Cost and Benefit of Producing Gadgets) Look at the table The Cost and
Benefit of Producing Gadgets. How many gadgets should you produce?
A)
two
B)
three
C)
four
D)
five
Page 32
Use the following to answer questions 131-132:
Figure: The Marginal Analysis of Cell Phones
131.
(Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal
Analysis of Cell Phones. You are considering purchasing cell phones. How many cell
phones will you consume?
A)
one
B)
two
C)
three
D)
four
132.
(Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal
Analysis of Cell Phones. You are considering purchasing cell phones for your
department. If you buy the fifth cell phone, your change in total profit will be equal to:
A)
$0.
B)
–$2.
C)
$2.
D)
$4.
Page 33
133.
You have rented your first apartment, signing a lease that commits you to pay $500 each
month for 12 months. You have an opportunity to take a trip to Europe during the entire
month of June, and you will spend $2,000 traveling. Your apartment will be vacant, but
because of your lease, you must still pay the rent. The cost of taking the trip to Europe
is:
A)
$2,000, because the $500 for your June rent is a sunk cost.
B)
$2,500, because this is your total spending during the month of June.
C)
$1,500, because the June rent is an opportunity cost of traveling that must be
deducted from the explicit cost of the trip.
D)
$2,500, because the June rent is an opportunity cost of traveling and must be added
to the explicit cost of the trip.
134.
Denaro pays $8,000 per month in rent to operate a health club in Memphis. He also pays
$17,000 per month in wages, $3,000 per month in food and supplies, and $1,000 per
month in insurance. All of his costs of production except his insurance and rent can
change if he makes different decisions about his health club production. Denaro's
monthly sunk costs equal:
A)
$20,000.
B)
$11,000.
C)
$29,000.
D)
$9,000.
135.
You plan to attend a movie on Saturday night. You buy a ticket for $7 and then lose it.
According to marginal analysis, you should:
A)
go home.
B)
buy another ticket and attend the movie.
C)
buy another ticket and attend the movie only if your marginal benefit of seeing the
movie is more than $14.
D)
look for the lost ticket.
136.
Sunk costs:
A)
affect economic profit.
B)
are the losses associated with failed business ventures.
C)
are an important component of marginal analysis.
D)
are the same as marginal costs.
Page 34
137.
Ian is such a big Braves fan that his benefit of seeing a Braves game is $200. He pays
$100 for a ticket to see one of their playoff games. Unfortunately, he left the ticket in his
jeans when he laundered them and the ticket was destroyed. According to marginal
analysis, Ian should:
A)
not go to the game.
B)
buy another ticket for $100 and attend the game.
C)
buy another ticket and attend the game only if he can buy the ticket for less than
$100.
D)
watch the game on TV.
138.
One of Jessuina's New Year's resolutions was to exercise more, so she bought an annual
membership to the gym that allows unlimited visits. Unfortunately, the gym is so
crowded and noisy that Jessuina leaves every day with a headache, without working out
at all. According to marginal analysis, Jessuina should:
A)
continue using the gym for the year, since she has already paid for the membership.
B)
join another gym only if a membership is cheaper at the new gym.
C)
join another gym only if she can get a refund on her current membership.
D)
stop using the gym.
139.
Sunk costs:
A)
are not considered in marginal analysis.
B)
help to determine the optimal quantity of an activity.
C)
can dramatically increase marginal costs.
D)
are the same as variable costs.
140.
After three years at an expensive college, Pierre realizes that he doesn't want to finish
school but really wants to be a chef. When Pierre suggests that he leave college for
culinary school, his parents insist that he stay for one more year to get his degree. Which
of the following is TRUE?
A)
Pierre's parents are correct: if he leaves college, it is as though he has wasted three
years of tuition.
B)
Pierre's parents are wrong: the marginal benefit to Pierre of another year of college
is less than the marginal cost of college.
C)
Pierre's parents are wrong: the marginal benefit to Pierre of another year of college
is greater than the marginal cost of college.
D)
It is impossible to tell who is correct.
Page 35
141.
Economists' and psychologists' attempts to understand and explain why people make
decisions that appear to be irrational is the field of study called _____ economics
A)
international
B)
irrational
C)
rational
D)
behavioral
142.
The purpose of behavioral economics is to determine why:
A)
people maximize utility.
B)
firms maximize profit and minimize costs.
C)
people make decisions that appear to be irrational.
D)
markets usually behave in an efficient manner.
143.
When a decision maker chooses the option leading to the outcome that he or she most
prefers, he or she has made a _____ decision.
A)
irrational
B)
rational
C)
profit-maximizing
D)
loss-minimizing
144.
A rational economic decision:
A)
must always result in the largest economic payoff.
B)
usually results in the smallest economic payoff.
C)
may or may not result in the largest economic payoff.
D)
is concerned with efficiency but not with equity or fairness.
145.
The decision to tip a server is:
A)
a rational decision if the person leaving the tip is concerned about fairness.
B)
an irrational economic decision because it reduces the economic payoff of the
tipper.
C)
an example of decision making using bounded rationality.
D)
an example of behavior based on risk aversion.
146.
The decision to give a birthday present to a friend is:
A)
decision making using bounded rationality.
B)
behavior based on risk aversion.
C)
a rational decision if the person giving the gift is concerned about the recipient's
welfare.
D)
an irrational economic decision because it reduces the economic payoff of the
person giving the gift.
Page 36
147.
When a person makes a choice that is close to but not exactly the one that leads to the
best possible economic outcome, he or she is:
A)
making an irrational decision.
B)
usually ignoring opportunity costs.
C)
being overconfident.
D)
operating with bounded rationality.
148.
When a person makes a quick decision without taking the time to compare the
opportunity cost of all possible options, he or she is using:
A)
bounded rationality.
B)
risk aversion.
C)
loss aversion.
D)
the status quo.
149.
The “good enough” method of decision making is also called:
A)
utility-maximizing behavior.
B)
profit-maximizing behavior.
C)
bounded rationality.
D)
irrational decision making.
150.
Suppose Joan buys a new refrigerator to replace her old one that suddenly quit working.
If Joan buys the model on closeout sale and doesn't take time to do research on repair
records and energy efficiency of various other models, she is using:
A)
status quo decision making.
B)
bounded rationality.
C)
marginal analysis.
D)
risk aversion.
151.
Which of the following is an example of bounded rationality?
A)
Ann proofreads her term paper six times.
B)
Mary feels that she has studied enough to make an A+ on her economics exam but
studies another two hours just to be sure.
C)
Tim studies only an hour on the morning of his economics exam because he is
satisfied just to make a passing grade.
D)
Terry does his economics homework twice to be sure that he has a thorough
understanding of the topic.
Page 37
152.
The willingness to sacrifice some economic payoff to avoid a potential loss is:
A)
irrational behavior.
B)
bounded rationality.
C)
the result of a concern about fairness.
D)
risk aversion.
153.
A person who is risk averse:
A)
always makes irrational decisions.
B)
always makes rational decisions.
C)
is willing to pay to avoid economic loss.
D)
enjoys taking risks.
154.
People are willing to buy insurance because of:
A)
risk aversion.
B)
the status quo.
C)
the miscalculation of opportunity costs.
D)
bounded rationality.
155.
If a decision maker chooses an option that leaves him or her worse off than choosing
another available option, he or she is:
A)
using bounded rationality.
B)
basing the decision on risk aversion.
C)
making an irrational decision.
D)
making a rational decision.
156.
A decision maker who is irrational:
A)
chooses an option that makes him or her worse off rather than choosing another
available option.
B)
chooses the option that makes him or her better off rather than choosing another
available option.
C)
allocates income to maximize his or her satisfaction from consuming goods and
services.
D)
seeks to maximize business profit.
157.
The habit of mentally assigning dollars to different accounts so that some dollars are
worth more than others is:
A)
status quo bias.
B)
bounded rationality.
C)
loss aversion.
D)
mental accounting.
Page 38
158.
If a person engages in mental accounting, he or she:
A)
is unwilling to recognize a loss and move on.
B)
values some dollars more than others.
C)
tends to avoid making decisions.
D)
tries to balance his or her bank account mentally, without writing anything down.
159.
A person who is oversensitive to loss and is unwilling to recognize the loss and move on
has:
A)
loss aversion.
B)
risk aversion.
C)
status quo bias.
D)
mental accounting.
160.
A person with loss aversion:
A)
has a hard time recognizing losing investments and moving on.
B)
is likely to maximize total revenue rather than profit.
C)
is unlikely to ignore sunk costs.
D)
is more likely to use a credit card than to pay cash.
161.
The tendency to avoid making a decision is:
A)
status quo bias.
B)
bounded rationality.
C)
loss aversion.
D)
mental accounting.
162.
Which of the following is a systematic mistake that leads to irrational decisions?
A)
risk aversion
B)
bounded rationality
C)
maximizing profit rather than minimizing costs
D)
overconfidence
163.
Which of the following is NOT a common mistake that leads to irrational decisions?
A)
mental accounting
B)
loss aversion
C)
risk aversion
D)
misperceptions about opportunity costs
Page 39
164.
Joshua is tired of school and his part-time job and decides on the spur of the moment to
take a weekend trip to Cabo San Lucas. He pays for it with his credit card rather than
with money from his checking account. Which type of irrational behavior does this best
represent?
A)
status quo bias
B)
mental accounting
C)
loss aversion
D)
risk aversion
165.
Sally must submit a form to enroll in her company's flexible medical benefits program.
Although she has been employed over a year, she has yet to complete the form. Which
type of irrational behavior does this represent?
A)
status quo bias
B)
mental accounting
C)
loss aversion
D)
risk aversion
166.
If a star college quarterback turns down a multimillion-dollar offer from the NFL to
return for his senior year of college, he may be exhibiting:
A)
status quo bias.
B)
mental accounting.
C)
misperception of opportunity costs.
D)
risk aversion.
167.
Mary goes ahead and buys a new car because she expects to receive a 10% increase in
her salary next year. What type of behavior does this best represent?
A)
status quo bias
B)
overconfidence
C)
misperception of opportunity costs
D)
risk aversion
168.
Cindy just graduated from college and started working at a large accounting firm.
Although the firm will match her contributions to a retirement account, Cindy wants to
wait several years before participating, since there are so many things she needs to buy
right now. What type of behavior does this represent?
A)
unrealistic expectations about the future
B)
loss aversion
C)
mental accounting
D)
risk aversion
Page 40
169.
Lucy bought some stock 10 years ago that has been priced at half of her purchase price
for the past 5 years. However, Lucy refuses to sell the stock, thinking that if she waits
long enough, she will recover her investment. What type of behavior does this
represent?
A)
mental accounting
B)
bounded rationality
C)
risk aversion
D)
loss aversion
170.
Most economic models:
A)
assume that people behave irrationally.
B)
assume that people behave rationally.
C)
assume that people are reluctant to learn from their mistakes.
D)
are useless because they use too many simplifying assumptions.
171.
Because resources are scarce, the true cost of anything is its opportunity cost.
A)
True
B)
False
172.
Star athletes, singers, and actors often start their career very young, forgoing a college
education. This is an example of poor decision making, since a college education
provides benefits that will be invaluable later in their lives.
A)
True
B)
False
173.
When making decisions, a person should consider only costs that actually involve an
explicit money outlay. This is because such costs actually have to be paid, whereas
implicit costs are only notional or hypothetical.
A)
True
B)
False
174.
Part of the explicit cost of owning a restaurant is rent paid for the kitchen equipment.
A)
True
B)
False
175.
It is not possible to earn an economic profit without also earning an accounting profit.
A)
True
B)
False
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176.
Economic profits can be negative even if accounting profits are positive.
A)
True
B)
False
177.
Accounting profit takes into account explicit costs, but economic profit does not.
A)
True
B)
False
178.
An “either–or” decision is a choice between two activities.
A)
True
B)
False
179.
Marginal analysis should be used in “either–or” decisions.
A)
True
B)
False
180.
In cities, a mile of road lane may cost $30 million or more, while in rural areas a mile of
road lane may cost only $5 million. This means there should be more road lanes in rural
areas than in urban areas.
A)
True
B)
False
181.
If the marginal cost of any activity is constant at $4, then at the optimal quantity of the
activity, the marginal benefit will be $4.
A)
True
B)
False
182.
Anytime the marginal benefit of an activity is greater than zero, more activity should be
undertaken.
A)
True
B)
False
183.
The government should spend whatever amount is necessary to save a life.
A)
True
B)
False
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184.
Since they have already paid for their tickets, it does not make economic sense for fans
to leave before a game is finished.
A)
True
B)
False
185.
A sunk cost should be ignored in decisions about future actions.
A)
True
B)
False
186.
Sara spends $25 for an all-day ticket to an amusement park. After one ride, it begins to
rain and she wishes she had never come. Since she has already paid for her ticket, she
should stay at the amusement park until it closes or she has wasted her $25.
A)
True
B)
False
187.
Any expense that is not recoverable is considered a sunk cost.
A)
True
B)
False
188.
Samantha is an artist who operates her studio and gallery in town. She produces
watercolor paintings in the studio and sells them in the gallery. Give an example of an
explicit and an implicit cost that Samantha is likely to incur.
189.
Samantha quit her job teaching art at the high school and is now an artist who operates
her studio and gallery in town. She produces watercolor paintings in the studio and sells
them in the gallery. Last year at the high school she was paid a salary of $25,000. In the
operation of her small business, she spent $30,000 on supplies, $15,000 on utilities, and
$15,000 on rent. Her equipment depreciated by $3,000. How much revenue must
Samantha receive so that she doesn't regret quitting her job as a high school art teacher?
190.
Businesses employ resources in the production and sale of a good or service.
Accounting profit is typically used as a way of evaluating the success of a business, but
economists argue that economic profit is more relevant to determining whether a
business should continue to operate. What is the difference between these two measures
of profit? Explain why accounting profit is usually greater than economic profit.
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191.
Some restaurants offer an all-you-can-eat buffet. Diners pay a flat fee to get a plate, and
then they can eat as much as they want. Use marginal analysis to explain why even the
hungriest of diners will eventually stop eating.
Use the following to answer question 192:
192.
(Table: Slices of Pizza) Look at the table Slices of Pizza. Complete the table and
determine how many slices you should eat.
193.
You can buy slices of pizza at $2.50 each, and you have drawn up a table that
summarizes your total cost and total benefit of purchasing up to five slices of pizza. A
coworker, looking over your shoulder, says that you should consume five slices of pizza
because the total benefit you receive is greatest at that quantity. How do you respond? Is
there any situation in which your coworker might be correct?
194.
You and a friend have each spent $8 on a movie ticket. Ten minutes into the movie, you
both decide that the movie is horrible. Your friend says that you should stay and watch
the rest of it because you “should get your money's worth.” How do you respond?
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195.
Economic profits are calculated by:
A)
taking the difference between total revenue and the sum of explicit and implicit
costs.
B)
taking the difference between total revenue and explicit costs only.
C)
taking the difference between the total revenue and implicit costs only.
D)
summing total revenue, explicit costs, and implicit costs.
Use the following to answer questions 196-199:
Scenario: Betty's Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of
whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment
and raw materials add up to $75,000. Her business ability is legendary, and other companies
have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her
cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds
deposited with it.
196.
(Scenario: Betty's Cookie Shop) Given the information provided, Betty's implicit costs
are:
A)
her salary if she worked elsewhere and interest she forgoes by not selling her shop
and putting the money in the bank.
B)
the cost of labor, equipment, and raw materials.
C)
the revenue she receives from selling her cookies plus the cost of labor, equipment,
and raw materials.
D)
revenue she receives from selling her cookies and her labor costs.
197.
(Scenario: Betty's Cookie Shop) Betty's explicit costs are equal to:
A)
$100,000.
B)
$80,000.
C)
$250,000.
D)
$264,000.
198.
(Scenario: Betty's Cookie Shop) Betty's implicit and explicit costs are equal to:
A)
$80,000.
B)
$184,500.
C)
$204,500.
D)
$100,000.
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199.
(Scenario: Betty's Cookie Shop) Betty is trying to decide at what point she should stop
selling cookies, and she knows she cannot change the price of a cookie. She should stop
selling cookies if:
A)
her economic profit is positive.
B)
her explicit and implicit costs are less than her revenues.
C)
her implicit costs are greater than her accounting profits.
D)
her economic profit is equal to her accounting profit.
200.
If the marginal cost curve is upward-sloping, as output increases, marginal costs will:
A)
increase.
B)
decrease.
C)
stay constant.
D)
become downward-sloping.
201.
If marginal costs remain constant, the marginal cost curve is:
A)
vertical.
B)
horizontal.
C)
upward-sloping from the origin.
D)
downward-sloping.
202.
As George ate pizza during one recent outing, he found that he enjoyed each additional
slice less and less. This implies that his marginal benefit was:
A)
decreasing.
B)
increasing.
C)
constant.
D)
vertical.
203.
If marginal costs of production are greater than marginal benefits of production:
A)
costs will eventually decrease.
B)
too much of the good is being produced.
C)
more of the good should be produced.
D)
not all costs are being considered.
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204.
Firms will continue to produce if:
A)
the marginal benefits of producing an additional unit are greater than the marginal
costs of producing that unit.
B)
the marginal benefits of producing an additional unit are less than the marginal
costs of producing that unit.
C)
the marginal benefit of producing an additional unit is equal to the marginal cost of
producing that unit.
D)
the costs of producing the unit stay constant.
Use the following to answer questions 205-208:
205.
(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor and assume that marginal
cost is constant in the intervals of production. If 10 slices are being produced, the
marginal cost of producing one more slice of pizza is:
A)
$2.
B)
$10.
C)
$40.
D)
$70.
206.
(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor and assume that marginal
cost is constant in the intervals of production. The marginal cost for pizza production:
A)
remains constant.
B)
increases, then decreases.
C)
increases.
D)
decreases.
207.
(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. Assume that the marginal
benefit is constant in intervals of production. Suppose five slices of pizza are being
produced. What is the marginal benefit of producing one more slice of pizza?
A)
$3
B)
$2
C)
$15
D)
$55
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208.
(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. What is the optimal level
of production?
A)
5 slices
B)
10 slices
C)
15 slices
D)
20 slices
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