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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
$5800. 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.
93. Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $6200.
Bill discovers that he needs to do an additional $2400 of work to make the car worth $6200 to potential buyers. He could
also sell the car now, without completing the additional work, for $3800. What should he do?
a.
He should sell the car now for $3800.
b.
He should keep the car since it wouldn’t be rational to spend $6400 restoring a car and then sell it for only
$6200.
c.
He should complete the additional work and sell the car for $6200.
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.
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.
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.
99. It costs a furniture company $8,750 to produce 25 tables. The company’s total cost will be $9,125 if it produces a 26th
table. If the company produces 26 tables, 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.
This cannot be determined from the information given.
100. Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the
marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel
manager should
a.
rent the room because the marginal benefit exceeds the marginal cost.
b.
rent the room because the marginal benefit exceeds the average cost.
c.
not rent the room because the marginal benefit is less than the marginal cost.
d.
not rent the room because the marginal benefit is less than the average cost.
101. Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. The
marginal cost per room per night
a.
is $40.
b.
is $80.
c.
is $120.
d.
cannot be determined from the information given.
102. Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the
marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a
customer is willing to pay
a.
more than $40, as the average benefit will exceed the marginal cost.
b.
more than $40, as the marginal benefit will exceed the marginal cost.
c.
more than $80, as the average benefit will exceed the marginal cost.
d.
more than $80, as the marginal benefit will exceed the marginal cost.
103. It costs a company $35,000 to produce 500 graphing calculators. The company’s cost will be $35,080 if it produces
an additional graphing calculator. If the company produces 501 graphing calculators 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.
This cannot be determined from the information given.
104. DeShawn has spent $600 purchasing and repairing an old fishing boat, which he expects to sell for $900 once the
repairs are complete. DeShawn discovers that, in addition to the $600 he has already spent, he needs to make an additional
repair, which will cost another $400, in order to make the boat worth $900 to potential buyers. He can sell the boat as it is
now for $400. What should he do?
a.
He should sell the boat as it is now for $400.
b.
He should keep the boat since it would not be rational to spend $1,000 on repairs and then sell the boat for
$900.
c.
He should complete the repairs and sell the boat for $900.
d.
It does not matter which action he takes; the outcome is the same either way.
105. Betty’s Bakery bakes fresh bread every morning. Any bread not sold by the end of the day is thrown away. A loaf of
bread costs Betty $2.00 to produce, and she prices loaves of bread at $3.50 per loaf. Suppose near the end of one day
Betty still has 12 loaves of bread on hand. Which of the following is correct?
a.
Betty should only sell the remaining bread for $3.50 per loaf since that is the regular price.
b.
Betty should only sell the remaining bread for $2.00 per loaf or more since that is what the bread costs to
make.
c.
Betty should be willing to sell the remaining bread for any price above $0 per loaf since she will have to throw
it away if she does not sell it for something.
d.
Betty should just throw the bread away and change the price of her bread starting tomorrow to make sure she
sells all of her bread each day.