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Use the following information in answering the following question(s).
Data for Apex Golf Cart Company
17) Based on the table above, the Apex Golf Cart Company faces fixed costs
A) of $200 per day.
B) of $300 per day.
C) of $7,000 per day.
D) that cannot be determined from the information given.
18) Based on the table above, the marginal cost of producing the 4th golf cart each day is
A) $1,400.
B) $300.
C) $400.
D) $350.
19) Based on the table above, if Apex can sell additional golf carts for $800 each, the profit-
maximizing (loss-minimizing) level of output is
A) 2 carts per day.
B) 5 carts per day.
C) 7 carts per day.
D) 8 carts per day.
20) Based on the table above, if the price Apex can get for its carts increases to $950, the profit-
maximizing (loss-minimizing) output will be
A) 2 carts per day.
B) 5 carts per day.
C) 7 carts per day.
D) 8 carts per day.
21) Based on the table above, assume that the price Apex can get for its carts remains at $950 but
that the company's fixed costs increase to $400 a day. Under those conditions, the profit-
maximizing (loss-minimizing) output will be
A) 2 carts per day.
B) 5 carts per day.
C) 7 carts per day.
D) 8 carts per day.
1) Economic models generally assume that individuals
A) behave impulsively.
B) carefully consider the impact of their decisions on others.
C) weigh the costs and benefits of their decisions.
D) are incapable of acting rationally.
2) Your neighbor volunteers to help you paint your house. Which of the following explanations
is most consistent with the economists' model?
A) Your neighbor likes you.
B) Your neighbor doesn't consider opportunity cost.
C) Your neighbor is irrational.
D) Your neighbor wants your help on a future project.
3) Susie has decided to attend BIG STATE UNIVERSITY. According to economists, this
decision
A) resulted from "falling in love with the campus" on her first visit.
B) was due to her efforts to please her parents, graduates of BIG STATE.
C) resulted from comparing the value of a BIG STATE education to that available elsewhere.
D) resulted from the fact that BIG STATE's tuition was the lowest of any school in a five-state
area.
4) According to the cost-benefit model, students
A) should always attend the college with the lowest tuition because it represents the best buy.
B) should always attend the college with the highest tuition because "you get what you pay for."
C) should be willing to pay higher tuition when institutions offer a superior education.
D) should decide whether the additional benefits provided by a superior education are worth the
additional cost.
5) Which of the following behaviors is most consistent with the way economists assume that
individuals will act?
A) John is a comparison shopper who always attempts to get the best value.
B) Jack is an impulse shopper who never takes a list to the grocery store.
C) Jane always buys the least expensive brand of canned goods.
D) Price of no object for Phyllis; she always buys the most expensive brand.
6) Phyllis always buys the most expensive brand of any product. This behavior
A) is clearly inconsistent with the economists' model of human behavior.
B) would be consistent with the economists' model if Phyllis is rich and has unlimited time for
shopping.
C) would be consistent with the economists' model if Phyllis's experience has convinced her that
you always get what you pay for.
D) would be consistent with the economists' model if Phyllis has unlimited time for shopping.
7) Jane and Susie are college students. Jane works part time; Susie does not. Which of the
following explanations would an economist offer for their behavior?
A) One of the students must be irrational.
B) The opportunity cost of working must be lower for Susie than for Jane.
C) Susie believes that the marginal benefit associated with working outweighs the marginal cost.
Jane disagrees.
D) Jane believes that the marginal benefit associated with working outweighs the marginal cost.
Susie disagrees.
8) Suppose that a rational person decides to spend an evening watching TV instead of studying.
That person must
A) be a poor student.
B) have ignored the opportunity cost of studying.
C) value TV more highly than studying.
D) value a marginal evening of TV more highly than a marginal evening of studying.
9) Julie is 25 years old and living in an apartment. She is thinking about quitting her job and
returning to college. Which of the following is least likely to be relevant to that decision?
A) the salary she is currently earning
B) tuition at the college she is considering
C) the cost of meals while she attends college
D) the cost of books and supplies
10) The sign at the refreshment stand of a local movie theater reads. "16 ounce soft drink, $1.50;
16 ounce popcorn, $1.00; 16 ounce popcorn with 16 ounce soft drink, $2.00." If you buy the soft
drink/popcorn combo, the marginal cost of the popcorn is
A) $2.00.
B) $1.50.
C) $1.00.
D) $0.50.
11) A business's fixed costs
A) only increase as output increases.
B) are the additional costs of producing one more unit of output.
C) never change.
D) do not vary with the level of output.
12) Which of the following is an example of an implicit cost?
A) the wages paid to production workers
B) rent paid for the use of a building
C) the income forgone when working for yourself
D) the cost of raw materials used in the manufacturing process
13) Which of the following is least likely to be a variable cost of doing business?
A) the cost of raw materials
B) insurance payments
C) the wages of production workers
D) shipping expenses
14) The short run is defined as a time period
A) of 1 year or less.
B) during which at least one input cannot be changed.
C) long enough to permit all inputs to be varied.
D) during which no inputs can be varied.
Use the following information in answering the following question(s).
Data for the Custom Surfboard Shop
15) Based on the table above, the Custom Surfboard Shop faces fixed costs of
A) $2,550 a day.
B) $1,350 a day.
C) $250 a day.
D) It cannot be determined from the information provided.
16) Based on the table above, the marginal cost of producing the second surfboard is
A) $600.
B) $300.
C) $250.
D) $150.
17) Based on the table above, when four units are produced, the firm's average variable cost is
A) $262.50.
B) $200.
C) $800.
D) $250.
18) Based on the table above, if Custom Surfboard can sell its boards for $300, the profit
maximizing level of output would be
A) 1 surfboard.
B) 3 surfboards.
C) 5 surfboards.
D) 7 surfboards.
19) Based on the table above, if the price Custom Surfboard can charge increases to $375, then
the profit-maximizing level of output would be
A) 2 surfboards.
B) 5 surfboards.
C) 6 surfboards.
D) 7 surfboards.
20) Which of the following accurately describes the relationship among the short-run cost
curves?
A) The average variable cost curve intersects the marginal and average total cost curves at their
respective minimums.
B) The marginal cost curve intersects the average variable and average total cost curves at their
respective minimums.
C) The average total cost curve intersects the marginal and average variable cost curves at their
respective minimums.
D) None of the above is true.
21) Which of the following is an example of a sunk cost?
A) the cost of the research and development required to develop a new product
B) the cost of a building site in a prime location
C) the cost of a Picasso painting to decorate the boss's office
D) All of the above are sunk costs.
22) Which of the following is false?
A) Marginal cost graphs as a "U" shaped curve; it declines initially and then begins to rise.
B) The vertical distance between the average variable and average total cost curves becomes
larger as output increases.
C) When marginal cost exceeds average total cost, average total cost is rising.
D) When marginal cost is equal to average variable cost, the average variable cost curve is at its
minimum.
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23) According to the text, gas stations businesses which sell nothing but gasoline have been
largely replaced by convenience stores because
A) the appearance of fuel-efficient cars has reduced the need for gasoline.
B) convenience stores are easier to open than gas stations.
C) the marginal cost of selling convenience items is low.
D) the cost of operating a convenience store is lower than the cost of operating a gas station.
24) Which of the following is least likely to be a variable cost of doing business?
A) the cost of raw materials
B) insurance payments
C) the wages of production workers
D) shipping expenses
1) Economists assume that individuals are motivated by the pursuit of self interest.
2) Impulsive actions are inconsistent with the economists' model of human behavior.
3) The opportunity cost of joining the army would be higher for unemployed people than for
those with a job.
4) The cost of gasoline is a variable cost of owning an automobile, while the cost of insurance is
regarded as a fixed cost.
5) Custom Krafts has found that it can produce 4 bookcases a day at a total cost of $600, or 5
bookcases a day at a cost of $800. The marginal cost of the fifth bookcase is $800.
6) The salary of the company accountant should probably be regarded as a fixed cost.
7) The wages paid to production workers are an example of an explicit cost.
8) If you start your own business, the salary you sacrifice to work for yourself is an example of
an explicit cost.
9) If the total cost of producing 100 units of output is $490 and the total cost of producing 101
units of output is $505, the marginal cost of the 101st unit is $15.
10) Rent and insurance payments are examples of fixed costs.
11) The marginal cost curve is a "U" shaped curve; marginal cost declines initially and then
increases as output expands.
12) Average fixed cost, like marginal cost, graphs as a "U" shaped curve; it declines and then
increases as output expands.
13) The average total cost curve intersects the marginal cost curve at its (marginal cost's)
minimum.
14) The salaries of production workers are probably a variable cost.
15) If a firm must pay $5,000 a month even if it produces nothing, that $5,000 represents a fixed
cost.
16) The marginal cost curve intersects both the average total cost curve and the average variable
cost curve at their respective minimums.
17) Total variable cost is equal to zero if output is equal to zero.
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18) The average fixed cost curve intersects the average total cost curve at the latter's minimum.
19) If average variable cost is equal to $50, average total cost must exceed $50.
20) One reason that marginal cost tends to increase as output expands is because workers must
wait to use equipment.
21) If it cost $5 to produce each additional unit of output, the marginal cost curve would be a
horizontal straight line at $5.
22) If marginal cost was $5 for the first unit, $6 for the second unit, and $7 for the third unit, the
total cost of producing 3 units of output would be $18.
23) If the average total cost of producing 10 units of output is $10 and the average variable cost
is $7, total fixed cost must be $30.
24) Total variable cost is equal to zero if output is zero.
25) Suppose the marginal cost of producing the first unit of output is $100 and the marginal cost
of producing the second unit of output is $80. If the total cost of producing two units of output is
$1080, the firm's total fixed costs must be equal to $ 900.
26) If the total cost of producing one unit of output is $1,000, the total cost of producing 2 units
is $1,200, and the total cost of producing 3 units is $1,450, the marginal cost of producing the
second unit of output is $200.
27) Menus that advertise "All you can eat for..." tempt people to overeat because the marginal
cost of the second plate of food is zero.
28) If you're planning a fishing trip, the cost of the trip should not include your monthly payment
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on the fishing boat.
29) Students at State University pay $4,500 a semester for tuition. This allows them to take up to
15 hours a semester. (Overloads must pay an additional fee of $200 per credit hour.) Under this
pricing scheme, the marginal cost of the second three hour course would be $900.
30) If the hiring of additional workers allows them to specialize in fewer tasks, marginal cost
may decline initially.
31) Profit-maximizing firms will produce the output level at which marginal revenue exceeds
marginal cost by the greatest amount.
32) If marginal revenue exceeds marginal cost at the existing level of output, the firm should cut
back on production. In other words, the firm is presently producing too much output to maximize
its profit or minimize its loss.
33) If marginal cost exceeds marginal revenue at the existing level of output, the firm is
producing too much output to maximize its profit or minimize its loss.
34) Grandpa's old saying that "two can live as cheaply as one," makes sense if we apply it to
fixed costs such as rent.
35) Marginal cost will rise whenever a firm begins to over-utilize its fixed plant and equipment.
36) If a firm shuts down and produces no output, the loss it incurs is equal to the amount of its
fixed costs.
1) John eats dinner at Elegant Elaine's every Friday evening, and he always leaves a large tip for
his waiter or waitress. But when John makes business trips, he never tips more than 10 percent,
and often leaves nothing at all. Explain John's behavior, including why it is or is not consistent
with the economists' model of human behavior?
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2) Many individuals and businesses contribute to charitable causes. Is this necessarily
inconsistent with the economists' model of human behavior?
3) Susie Smith is a local physician and spends very little time shopping for clothes or anything
else. In fact, she sometimes seems to act impulsively; she will buy the first thing she sees that
remotely fits her needs. Bob Bright is a cab driver and an extremely careful shopper. He never
buys anything until he has checked out each store's offering and compared prices. Can
economics help to explain their different behaviors?
4) ABC airlines is considering adding a daily flight from Nowhere to Somewhere. The airline
has estimated the number of passengers who would use this service, but is uncertain how to
compute the cost of providing these flights. What costs should (and should not) be considered in
deciding whether to add this flight to ABC's schedule?
5) Alice runs a catering business; she is highly regarded and works virtually every day of the
year. Last year, Bob Johnson hired Alice to cater his family reunion. On the morning of the
reunion, Bob called Alice to cancel the dinner. Alice complained. She had already purchased the
food and could not use it elsewhere. Bob refused to pay, so Alice took him to court. Alice asked
for $600, $350 for the cost of the food, and $250 for her preparation fee. Bob's lawyer argued
that he should only have to pay for the cost of the food, since Alice was not required to spend
any time in preparation. Who was correct?
6) Many restaurants have candy bars, maps, cigars, and other items for sale at the cashiers desk.
Use marginal reasoning to explain why this is a common practice.
7) What is the cost to an airline of allowing its employees to fly free? Might this cost differ from
flight to flight? Might it differ by time of the year? Discuss.
8) Assume that a firm's total fixed costs are $100 and that it has the variable costs indicated in
the following table. Complete the table.
9) Assume that a firm's total fixed costs are $100 and that it has the marginal costs indicated in
the following table. Complete the table.
Consider the cost information presented above. If this firm can sell each unit of output it
produces for $60, how many units should it produce to maximize its profit or minimize its loss?
What will be the amount of the firm's profit or loss?
