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Page 1
1.
Jacquelyn is a student at a major state university. Which factor is not an explicit cost of
her attending college?
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.
2.
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.
3.
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.
4.
Expenses associated with factors of production may be _____ costs.
A)
implicit
B)
opportunity
C)
explicit
D)
implicit, opportunity, or explicit
5.
Accountants use only _____ costs in their computations.
A)
opportunity
B)
implicit
C)
explicit
D)
variable
6.
You own a small deli that sells sandwiches, salads, and soup. Which factor 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
Page 2
7.
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.
8.
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
9.
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
10.
John's accountant tells him that he made a profit of $43,002 running a pottery studio in
Orlando. John's wife, an economist, claims John lost $43,002 running his pottery studio.
This means his wife is claiming that he incurred _____ in _____ costs.
A)
$86,004; implicit
B)
$43,002; implicit
C)
$43,002; explicit
D)
$86,004; explicit
11.
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.
Page 3
12.
If the accounting profit for a firm is negative, the:
A)
economic profit must be positive.
B)
economic profit must be negative.
C)
firm should produce more.
D)
firm will not owe any taxes.
13.
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.
14.
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
15.
For most firms, economic profit is:
A)
less than accounting profit.
B)
equal to accounting profit.
C)
greater than accounting profit.
D)
negative.
16.
Profit computed without implicit costs is _____ profit.
A)
explicit
B)
accounting
C)
implicit
D)
economic
17.
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.
Page 4
18.
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.
19.
The dormitories of Eastland College are part of its:
A)
land.
B)
labor.
C)
capital.
D)
explicit costs.
20.
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(n):
A)
implicit cost of capital.
B)
explicit cost.
C)
total cost.
D)
sunk cost.
21.
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).
22.
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.
23.
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
Page 5
24.
Accountants use only _____ costs in their computations of short-run total cost.
A)
opportunity
B)
implicit
C)
explicit
D)
variable
25.
Which question 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?
26.
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.
27.
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.
28.
Which statement describes 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.
Page 6
29.
Which statement describes 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.
30.
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.
31.
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.
32.
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.
Page 7
33.
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
34.
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
35.
(Scenario: Accounting and Economic Profit) Use Scenario: Accounting and Economic
Profit. The accounting profit of Wang's Wicker Furniture Store is:
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. In his first year, his revenue was $150,000.
A)
$200,000.
B)
$60,000.
C)
$30,000.
D)
$0.
Page 8
36.
(Scenario: Accounting and Economic Profit) Use Scenario: Accounting and Economic
Profit. The implicit cost of capital for Wang's Wicker Furniture Store is:
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. In his first year, his revenue was $150,000.
A)
$0.
B)
$2,000.
C)
$5,000.
D)
$50,000.
37.
(Scenario: Accounting and Economic Profit) Use Scenario: Accounting and Economic
Profit. What is the opportunity cost of Wang's $100,000 inheritance being used to start
his business?
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. In his first year, his revenue was $150,000.
A)
$0
B)
$5,000
C)
$10,000
D)
$100,000
Page 9
38.
(Scenario: Accounting and Economic Profit) Use Scenario: Accounting and Economic
Profit. What is the implicit cost of Wang's Wicker Furniture Store?
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. In his first year, his revenue was $150,000.
A)
$7,000
B)
$60,000
C)
$65,000
D)
$69,000
39.
(Scenario: Accounting and Economic Profit) Use Scenario: Accounting and Economic
Profit. The economic profit of Wang's Wicker Furniture Store is:
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. In his first year, his revenue was $150,000.
A)
$67,000.
B)
$0.
C)
-$20,000.
D)
-$35,000.
40.
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
Page 10
41.
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.
42.
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.
43.
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.
44.
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.
45.
For which decision 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
46.
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.
Page 11
47.
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
48.
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.
49.
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.
50.
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
51.
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.
Page 12
Use the following to answer questions 52-56:
52.
(Ref 17-1 Table: Marginal Cost of Sweatshirts) Use Table 17-1: Marginal Cost of
Sweatshirts. The marginal cost of the second sweatshirt is:
A)
$9.
B)
$20.
C)
$11.
D)
$29.
53.
(Ref 17-1 Table: Marginal Cost of Sweatshirts) Use Table 17-1: Marginal Cost of
Sweatshirts. The marginal cost of the third sweatshirt is:
A)
$33.
B)
$13.
C)
$11.
D)
$9.
54.
(Ref 17-1 Table: Marginal Cost of Sweatshirts) Use Table 17-1: Marginal Cost of
Sweatshirts. The marginal cost of the fourth sweatshirt is:
A)
$9.
B)
$20.
C)
$24.
D)
$15.
55.
(Ref 17-1 Table: Marginal Cost of Sweatshirts) Use Table 17-1: Marginal Cost of
Sweatshirts. The marginal cost of the fifth sweatshirt is:
A)
$17.
B)
$15.
C)
$13.
D)
$11.
Page 13
56.
(Ref 17-1 Table: Marginal Cost of Sweatshirts) Use Table 17-1: Marginal Cost of
Sweatshirts. The marginal cost of producing sweatshirts is an example of _____
marginal costs.
A)
decreasing
B)
increasing
C)
constant
D)
random
57.
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.
58.
Learning effects often result in _____ marginal costs.
A)
decreasing
B)
increasing
C)
constant
D)
random
59.
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
60.
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.
Page 14
61.
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 62-64:
62.
(Ref 17-2 Figure: The Marginal Benefit Curve) Use Figure 17-2: The Marginal Benefit
Curve. The total benefit of mowing four lawns is approximately:
A)
$25.
B)
$35.
C)
$80.
D)
$114.
63.
(Ref 17-2 Figure: The Marginal Benefit Curve) Use Figure 17-2: The Marginal Benefit
Curve. The total benefit of mowing six lawns is approximately:
A)
$19.
B)
$35.
C)
$154.
D)
$200.
Page 15
64.
(Ref 17-2 Figure: The Marginal Benefit Curve) Use Figure 17-2: The Marginal Benefit
Curve. The total benefit of mowing seven lawns is approximately:
A)
$172.
B)
$140.
C)
$60.
D)
$18.
65.
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.
66.
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
Use the following to answer questions 67-70:
67.
(Ref 17-3 Table: Marginal Benefit of Sweatshirts) Use Table 17-3: Marginal Benefit of
Sweatshirts. The marginal benefit of producing the second sweatshirt is:
A)
$31.
B)
$16.
C)
$15.
D)
$14.
Page 16
68.
(Ref 17-3 Table: Marginal Benefit of Sweatshirts) Use Table 17-3: Marginal Benefit of
Sweatshirts. The marginal benefit of producing the third sweatshirt is:
A)
$31.
B)
$16.
C)
$15.
D)
$14.
69.
(Ref 17-3 Table: Marginal Benefit of Sweatshirts) Use Table 17-3: Marginal Benefit of
Sweatshirts. The marginal benefit of producing the fourth sweatshirt is:
A)
$58.
B)
$14.
C)
$13.
D)
$12.
70.
(Ref 17-3 Table: Marginal Benefit of Sweatshirts) Use Table 17-3: Marginal Benefit of
Sweatshirts. The marginal benefit of producing the fifth sweatshirt is:
A)
$70.
B)
$14.
C)
$13.
D)
$12.
71.
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
72.
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
Page 17
73.
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
74.
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.
75.
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
76.
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
77.
In economic analysis, at the optimal quantity of an activity:
A)
marginal benefit exceeds marginal cost by the greatest amount.
B)
total benefit equals total cost.
C)
marginal benefit equals total benefit.
D)
total benefit exceeds total cost by the greatest amount and marginal benefit equals
marginal cost.
Page 18
78.
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.
79.
Suppose Bob has a part-time, car washing business. 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.
80.
To maximize her grade in economics, Stacey should study until her:
A)
marginal cost of studying begins to increase.
B)
marginal benefit of studying begins to decrease.
C)
marginal benefit of studying equals her marginal cost of studying.
D)
marginal cost of studying reaches zero.
81.
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
82.
According to the profit-maximizing principle of marginal analysis, if the marginal
benefit is _____ the marginal cost, _____.
A)
more than; an activity should be increased
B)
less than; an activity should be reduced
C)
equal to; an activity should be reduced
D)
more than; net benefit is maximized
Page 19
83.
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
84.
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
85.
To maximize total profit from a particular activity, consumers and firms evaluate each
activity at the:
A)
average.
B)
top.
C)
margin.
D)
end.
86.
Total profit is maximized when marginal benefit _____ marginal cost.
A)
is more than
B)
is less than
C)
is equal to
D)
approaches
87.
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.
88.
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
Page 20
89.
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
90.
If at a given quantity MB = MC, the decision maker should do _____ of the activity.
A)
less
B)
that amount
C)
more
D)
none
91.
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.
92.
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.
93.
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.
Page 21
Use the following to answer questions 94-95:
94.
(Ref 17-4 Table: Marginal Analysis of Sweatshirt Production I) Use Table 17-4:
Marginal Analysis of Sweatshirt Production I. The optimal quantity of sweatshirts to
produce is:
A)
2.
B)
3.
C)
4.
D)
5.
95.
(Ref 17-4 Table: Marginal Analysis of Sweatshirt Production I) Use Table 17-4:
Marginal Analysis of Sweatshirt Production I. The profit at the optimal quantity of
sweatshirts is:
A)
$8.
B)
$12.
C)
$45.
D)
$70.
Use the following to answer question 96:
Page 22
96.
(Ref 17-5 Table: Marginal Analysis of Sweatshirt Production II) Use Table 17-5:
Marginal Analysis of Sweatshirt Production II. The optimal quantity of sweatshirts to
produce is:
A)
2.
B)
3.
C)
4.
D)
5.
97.
(Ref 17-5 Table: Marginal Analysis of Sweatshirt Production II) Use Table 17-5:
Marginal Analysis of Sweatshirt Production II. The profit at the optimal quantity of
sweatshirts is:
A)
$15.
B)
$16.
C)
$48.
D)
$80.
98.
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.
Use the following to answer questions 99-103:
Page 23
99.
(Ref 17-6 Table: Marginal and Total Benefit) Use Table 17-6: Marginal and Total
Benefit. Sid 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 2 to 3 is:
A)
40.
B)
30.
C)
10.
D)
20.
100.
(Ref 17-6 Table: Marginal and Total Benefit) Use Table 17-6: Marginal and Total
Benefit. Sid 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
101.
(Ref 17-6 Table: Marginal and Total Benefit) Use Table 17-6: Marginal and Total
Benefit. Sid 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
102.
(Ref 17-6 Table: Marginal and Total Benefit) Use Table 17-6: Marginal and Total
Benefit. Sid 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
Page 24
103.
(Ref 17-6 Table: Marginal and Total Benefit) Use Table 17-6: Marginal and Total
Benefit. Sid 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, Sid'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 104-107:
104.
(Figure Ref 17-7: The Optimal Quantity) Use Figure 17-7: The Optimal Quantity. If the
marginal benefit of lawn mowing increased, the marginal _____ curve in the figure
would shift to the _____ and the optimal quantity would be _____ than five lawns
mowed.
A)
benefit; right; more
B)
cost; right; fewer
C)
benefit; left; fewer
D)
cost; left; more
Page 25
105.
(Ref 17-7 Figure: The Optimal Quantity) Use Figure 17-7: The Optimal Quantity. If the
marginal benefit of lawn mowing decreased, the marginal _____ curve in the figure
would shift to the _____ and the optimal quantity would be _____ than five lawns
mowed.
A)
benefit; right; more
B)
cost; right; fewer
C)
benefit; left; fewer
D)
cost; left; more
106.
(Ref 17-7 Figure: The Optimal Quantity) Use Figure 17-7: The Optimal Quantity. If the
cost of lawn mowing decreased for all quantities of lawns mowed, the marginal _____
curve in the figure would shift to the _____ and the total profit would _____.
A)
benefit; right; increase
B)
cost; right; increase
C)
benefit; left; decrease
D)
cost; left; decrease
107.
(Ref 17-7 Figure: The Optimal Quantity) Use Figure 17-7: The Optimal Quantity. If the
cost of lawn mowing increased for all quantities of lawns mowed, the marginal _____
curve in the figure would shift to the _____ and the total profit would _____.
A)
benefit; right; increase
B)
cost; right; increase
C)
benefit; left; decrease
D)
cost; left; decrease
Use the following to answer questions 108-111:
Page 26
108.
(Ref 17-8 Figure: Marginal Benefits and Marginal Costs) Use Figure 17-8: Marginal
Benefits and Marginal Costs. More time spent studying economics adds points to
economics scores (MB) but subtracts points from accounting scores (MC). When
Claudia studies economics for four hours, the marginal benefit is _____ points; when
she studies for 6 hours, the marginal benefit is _____ points.
A)
20; 10
B)
30; 10
C)
20; 0
D)
20; 30
109.
(Ref 17-8 Figure: Marginal Benefits and Marginal Costs) Use Figure 17-8: 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
110.
(Ref 17-8 Figure: Marginal Benefits and Marginal Costs) Use Figure 17-8: 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 4 hours is _____ points, and the marginal cost is
_____ points.
A)
30; 30
B)
20; 10
C)
20; 20
D)
30; 10
111.
(Ref 17-8 Figure: Marginal Benefits and Marginal Costs) Use Figure 17-8: Marginal
Benefits and Marginal Costs. More time spent studying economics adds points to
economics scores (MB) but subtracts points from accounting scores (MC). At 4 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.
Page 27
Use the following to answer questions 112-116:
112.
(Ref 17-9 Table: Expected Exam Scores from Studying Economics and Accounting)
Use Table 17-9: Expected Exam Scores from Studying Economics and Accounting. If
you studied for a total of 3 hours, your combined scores would be maximized by
spending _____ hours studying economics.
A)
1
B)
2
C)
3
D)
4
113.
(Ref 17-9 Table: Expected Exam Scores from Studying Economics and Accounting)
Use Table 17-9: Expected Exam Scores from Studying Economics and Accounting. If
you studied for a total of 3 hours, your combined scores would be maximized by
spending _____ hours studying accounting.
A)
0
B)
1
C)
2
D)
3
114.
(Ref 17-9 Table: Expected Exam Scores from Studying Economics and Accounting)
Use Table 17-9: Expected Exam Scores from Studying Economics and Accounting. If
you studied for a total of 3 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
Page 28
115.
(Ref 17-9 Table: Expected Exam Scores from Studying Economics and Accounting)
Use Table 17-9: 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
116.
(Ref 17-9 Table: Expected Exam Scores from Studying Economics and Accounting)
Use Table 17-9: 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
Use the following to answer questions 117-121:
117.
(Ref 17-10 Table: Tutoring) Use Table: 17-10 Tutoring. Sigmund faces:
A)
increasing marginal benefit.
B)
decreasing marginal benefit.
C)
increasing marginal cost.
D)
constant marginal cost.
Page 29
118.
(Ref 17-10 Table: Tutoring) Use Table 17-10: Tutoring. If he can charge all students
their willingness to pay, Sigmund's optimal number of tutoring hours is:
A)
5.
B)
4.
C)
3.
D)
2.
119.
(Ref 17-10 Table: Tutoring) Use Table 17-10: 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.
120.
(Ref 17-10 Table: Tutoring) Use Table 17-10: 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)
5.
B)
4.
C)
3.
D)
2.
121.
(Ref 17-10 Table: Tutoring) Use Table 17-10: 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.
Page 30
Use the following to answer question 122:
122.
(Ref 17-11 Table: The Cost of Producing Gadgets) Use Table 17-11: 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.
Use the following to answer question 123:
123.
(Ref 17-12 Table: The Benefit of Producing Gadgets) Use Table 17-12: 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.
D)
increasing at a decreasing rate.
Page 31
Use the following to answer question 124:
124.
(Ref 17-13 Table: The Cost and Benefit of Producing Gadgets) Use Table 17-13: The
Cost and Benefit of Producing Gadgets. How many gadgets should you produce?
A)
2
B)
3
C)
4
D)
5
Use the following to answer questions 125-126:
125.
(Ref 17-14 Figure: The Marginal Analysis of Cell Phones) Use Figure 17-14: The
Marginal Analysis of Cell Phones. You are considering purchasing cell phones. How
many cell phones will you consume?
A)
1
B)
2
C)
3
D)
4
Page 32
126.
(Ref 17-14 Figure: The Marginal Analysis of Cell Phones) Use Figure 17-14: 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.
127.
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.
128.
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.
129.
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.
Page 33
130.
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.
131.
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.
132.
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.
133.
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.
Page 34
134.
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
statement 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.
135.
Because resources are scarce, the true cost of anything is its opportunity cost.
A)
True
B)
False
136.
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
137.
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
138.
Part of the explicit cost of owning a restaurant is rent paid for the kitchen equipment.
A)
True
B)
False
139.
It is not possible to earn an economic profit without also earning an accounting profit.
A)
True
B)
False
140.
Economic profits can be negative, even if accounting profits are positive.
A)
True
B)
False
Page 35
141.
Accounting profit takes into account explicit costs, but economic profit does not.
A)
True
B)
False
142.
An “either-or” decision is a choice between two activities.
A)
True
B)
False
143.
Marginal analysis should be used in “either-or” decisions.
A)
True
B)
False
144.
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
145.
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
146.
Anytime the marginal benefit of an activity is greater than zero, more activity should be
undertaken.
A)
True
B)
False
147.
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
148.
A sunk cost should be ignored in decisions about future actions.
A)
True
B)
False
Page 36
149.
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
150.
Any expense that is not recoverable is considered a sunk cost.
A)
True
B)
False
151.
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.
152.
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?
153.
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.
Use the following to answer question 154:
Page 37
154.
(Ref 17-15 Table: Slices of Pizza) Use Table 17-15: Slices of Pizza. Complete the table
and determine how many slices you should eat.
155.
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?
156.
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?
157.
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.
Page 38
158.
(Scenario: Betty's Cookie Shop) Use Scenario: Betty's Cookie Shop. Given the
information provided, Betty's implicit costs are:
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.
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.
159.
(Scenario: Betty's Cookie Shop) Use Scenario: Betty's Cookie Shop. Betty's explicit
costs are equal to:
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.
A)
$100,000.
B)
$80,000.
C)
$250,000.
D)
$264,000.
Page 39
160.
(Scenario: Betty's Cookie Shop) Use Scenario: Betty's Cookie Shop. Betty's implicit and
explicit costs are equal to:
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.
A)
$80,000.
B)
$184,500.
C)
$204,500.
D)
$100,000.
161.
(Scenario: Betty's Cookie Shop) Use 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 her:
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.
A)
economic profit is positive.
B)
explicit and implicit costs are less than her revenues.
C)
implicit costs are greater than her accounting profits.
D)
economic profit is equal to her accounting profit.
162.
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.
Page 40
163.
If marginal costs remain constant, the marginal cost curve is:
A)
vertical.
B)
horizontal.
C)
upward sloping from the origin.
D)
downward sloping.
164.
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.
165.
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.
166.
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 167-169:
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167.
(Ref 17-16 Table: TC's Pizza Parlor) Use Table 17-16: TC's Pizza Parlor. 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.
168.
(Ref 17-16 Table: TC's Pizza Parlor) Use Table 17-16: 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
169.
(Ref 17-16 Table: TC's Pizza Parlor) Use Table 17-16: 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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