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Test Canvas : TestBanks Chapter 09: Decision Making by Individuals and Firm s
Microeconom ics, 3e
Test Canvas: TestBanks Chapter 09: Decision Making by
Individuals and Firms
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1. True/False: Because resources are scarce, the tru...
Question Because resources are scarce, the true cost of anything is its opportunity cost.
2. True/False: Star athletes, singers, and actors of...
Question 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.
3. True/False: When making decisions, it is importan...
Question When making decisions, it is important to consider only those 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.
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4. True/False: Part of the explicit cost of owning a...
Question Part of the explicit cost of owning a restaurant is depreciation on the kitchen
equipment.
5. True/False: It is not possible to earn an economi...
Question It is not possible to earn an economic profit without also earning an accounting
profit.
6. True/False: Economic profits can be negative even...
Question Economic profits can be negative even if accounting profits are positive.
7. True/False: Accounting profit takes into account ...
Question Accounting profit takes into account depreciation, but economic profit does not.
8. True/False: An “either–or” deci...
Question An “either–or” decision is a choice between two activities.
9. True/False: Marginal analysis should be used in &...
Question Marginal analysis should be used in “either–or” decisions.
10. True/False: In cities, a mile of road lane may co...
Question 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.
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11. True/False: If the marginal cost of any activity ...
Question 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.
12. True/False: Anytime the marginal benefit of an ac...
Question Anytime the marginal benefit of an activity is greater than zero, more activity should
be undertaken.
13. True/False: The government should spend whatever ...
Question The government should spend whatever amount is necessary to save a life.
14. True/False: Since they have already paid for thei...
Question Since they have already paid for their tickets, it does not make economic sense for
fans to leave before a game is finished.
15. True/False: A sunk cost should be ignored in deci...
Question A sunk cost should be ignored in decisions about future actions.
16. True/False: Sara spends $25 for an all-day ticket...
Question 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.
17. True/False: Any expense that is not recoverable i...
Question Any expense that is not recoverable is considered a sunk cost.
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18. Multiple Choice: Jacquelyn is a student at a major sta...
Question Jacquelyn is a student at a major state university. Which of the following is not an
example of an explicit cost of her attending college?
Answer tuition
19. Multiple Choice: Which of the following statements abo...
Question Which of the following statements about opportunity cost is not true?
Answer Opportunity cost may be larger than monetary cost.
20. Multiple Choice: After earning your BA, you have to de...
Question After earning your BA, you have to decide whether to accept the offer of 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 in order to pay the remaining $22,000 per year, you would have to cash
in savings bonds that your grandparents have given you that have been earning $500
in interest per year. The annual opportunity cost of earning your MBA is:
21. Multiple Choice: Money that must be paid for the use o...
Question
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Money that must be paid for the use of factors of production such as labor and
capital is an:
22. Multiple Choice: Costs that are included in the econom...
Question Costs that are included in the economic concept of cost but that are not explicit
costs are:
Answer outlay costs.
23. Multiple Choice: Expenses associated with factors of p...
Question Expenses associated with factors of production may be:
Answer implicit costs.
24. Multiple Choice: Accountants use only ________ costs i...
Question Accountants use only ________ costs in their computations of cost.
Answer opportunity
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25. Multiple Choice: You own a small deli that sells sandw...
Question You own a small deli that sells sandwiches, salads, and soup to the community.
Which of the following is an implicit cost of the business?
Answer wages paid to part-time employees
26. Multiple Choice: The implicit cost of capital is:
Question The implicit cost of capital is:
Answer the expense associated with leasing machines.
27. Multiple Choice: Suppose the Chicago Cubs could rent o...
Question Suppose the Chicago Cubs could rent out Wrigley Field (the field the players play
on) to local youth leagues for $11,000 per month. The $11,000 per month reflects
the ________ of capital.
28. Multiple Choice: In central Florida, the demand for re...
Question In central Florida, the demand for real estate has been increasing rapidly for years.
This reality, in combination with occasional freezes that kill orange trees, has led
many orange grove owners to sell their land to real estate developers. Because of
the freezes and land demand, the ________ cost of capital is ________ in central
Florida's orange groves.
Answer explicit; decreasing
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29. Multiple Choice: Sarah's accountant tells her that she...
Question 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.
30. Multiple Choice: Accounting profit differs from econom...
Question Accounting profit differs from economic profit because:
Answer of differences in the manner in which revenue is calculated.
31. Multiple Choice: If the accounting profit for a firm i...
Question If the accounting profit for a firm is negative:
Answer the economic profit must be positive
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32. Multiple Choice: Suppose a local hardware store has ex...
Question 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:
33. Multiple Choice: Part of the ________ associated with ...
Question Part of the ________ associated with the Chicago Cubs baseball team is the value
of batting cages.
Answer labor
34. Multiple Choice: For most firms, economic profit is:
Question For most firms, economic profit is:
35. Multiple Choice: Profit computed using explicit costs ...
Question Profit computed using explicit costs as the only measure of costs is:
Answer explicit profit.
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36. Multiple Choice: The implicit cost of capital is:
Question The implicit cost of capital is:
Answer the explicit cost of capital that the firm might have used but didn't need to.
37. Multiple Choice: Suppose a local floral shop has expli...
Question 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, this means that the store's accounting profit equaled:
Answer $10,000.
38. Multiple Choice: The dormitories of Eastland College a...
Question The dormitories of Eastland College are part of its:
Answer land.
39. Multiple Choice: Suppose Eastland College does not hav...
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Question 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:
40. Multiple Choice: The costs economists use in the conce...
Question The costs economists use in the concept of economic profit are:
Answer accounting costs.
41. Multiple Choice: Which of the following is true of the...
Question Which of the following is true of the relationship between accounting profit and
economic profit?
42. Multiple Choice: Profit is the difference between ____...
Question Profit is the difference between ________ and ________.
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43. Multiple Choice: Profit computed using explicit costs ...
Question Profit computed using explicit costs as the only measure of costs is:
Answer explicit profit.
44. Multiple Choice: Accountants use only ________ costs i...
Question Accountants use only ________ costs in their computations of short-run total cost.
Answer opportunity
45. Multiple Choice: Which of the following best describes...
Question Which of the following best describes a “how much” decision?
Answer Should I drive to work or ride my bicycle?
46. Multiple Choice: An “either–or” deci...
Question An “either–or” decision involves
Answer deciding how much of an activity to do.
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47. Multiple Choice: In making an “either–or&r...
Question In making an “either–or” decision
Answer choose the activity that results in the greater economic profit.
48. Multiple Choice: Which of the following is an “e...
Question Which of the following is an “either–or” decision?
Answer Allen must decide how many courses to take this semester.
49. Multiple Choice: Which of the following is a “ho...
Question Which of the following is a “how much” decision?
Answer Mary is trying to decide whether to go to work or go to college after she
graduates from high school next month.
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50. Multiple Choice: You decide to quit your $60,000 per y...
Question 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:
Answer $15,000.
51. Multiple Choice: During its only year of operation, a ...
Question 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:
Answer $35,000.
52. Multiple Choice: Until recently Rosemarie worked as an...
Question 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:
Answer $230,000.
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53. Multiple Choice: George owns a gun range in Texas. He ...
Question George owns a gun range 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 ________.
Answer profit; $3,000
54. Multiple Choice: Bessie wants to calculate the account...
Question Bessie wants to calculate the accounting and economic profits on her cattle farm in
Nebraska. She pays $30,000 per year for the cost of raising cattle, $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 ________.
55. Multiple Choice: Scenario: Accounting and Economic Pro...
Question 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 that paid $60,000 per year and
started Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the
year, purchased capital equipment that depreciates $5,000 each 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.
Reference: Ref 9-1
(Scenario: Accounting and Economic Profit) The accounting profit of Wang's Wicker
Furniture Store is:
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56. Multiple Choice: Scenario: Accounting and Economic Pro...
Question 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 that paid $60,000 per year and
started Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the
year, purchased capital equipment that depreciates $5,000 each 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.
Reference: Ref 9-1
(Scenario: Accounting and Economic Profit) The implicit cost of capital for Wang's
Wicker Furniture Store is:
57. Multiple Choice: Scenario: Accounting and Economic Pro...
Question 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 that paid $60,000 per year and
started Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the
year, purchased capital equipment that depreciates $5,000 each 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.
Reference: Ref 9-1
(Scenario: Accounting and Economic Profit) What is the opportunity cost of Wang's
$100,000 inheritance?
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58. Multiple Choice: Scenario: Accounting and Economic Pro...
Question 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 that paid $60,000 per year and
started Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the
year, purchased capital equipment that depreciates $5,000 each 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.
Reference: Ref 9-1
(Scenario: Accounting and Economic Profit) What are the implicit costs of Wang's
Wicker Furniture Store?
59. Multiple Choice: Scenario: Accounting and Economic Pro...
Question 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 that paid $60,000 per year and
started Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the
year, purchased capital equipment that depreciates $5,000 each 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.
Reference: Ref 9-1
(Scenario: Accounting and Economic Profit) The economic profit of Wang's Wicker
Furniture Store is:
60. Multiple Choice: Andreas is a political consultant wit...
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Question 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 $25,000 on rent and utilities for that office. Andreas owns
computing and office equipment that depreciated by $5,000 last year. His
accountant tells him that if he were to sell all of the equipment, he could put that
money in the bank and earn $3,000 in interest next year. Bill also has received an
offer to teach political science at a college at a salary of $100,000. Bill's accounting
profit is equal to ________ and his economic profit is equal to ________.
61. Multiple Choice: The amount by which an additional uni...
Question The amount by which an additional unit of an activity increases total benefit is:
62. Multiple Choice: The amount by which an additional uni...
Question The amount by which an additional unit of an activity increases total cost is:
63. Multiple Choice: In economics, a marginal value refers...
Question In economics, a marginal value refers to:
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64. Multiple Choice: In economic analysis, the principle o...
Question In economic analysis, the principle of marginal analysis refers to:
65. Multiple Choice: For which of the following decisions ...
Question For which of the following decisions would marginal analysis be relevant?
66. Multiple Choice: Marginal analysis is relevant for:
Question Marginal analysis is relevant for:
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67. Multiple Choice: A “how much” decision is ...
Question A “how much” decision is best made by comparing:
68. Multiple Choice: Feng is thinking of mowing lawns over...
Question 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:
69. Multiple Choice: Pauli's Pizza offers the following pr...
Question Pauli's Pizza offers the following prices: one slice for $2, two slices for $3.50, three
slices for $4.50, four slices for $5.00. The marginal cost of the third slice to Hui is:
70. Multiple Choice: Figure: The Marginal Cost Curve Refer...
Question
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Figure: The Marginal Cost Curve
Reference: Ref 9-2
(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve.
According to the marginal cost curve, the total cost of mowing four lawns is
approximately:
71. Multiple Choice: Figure: The Marginal Cost Curve Refer...
Question Figure: The Marginal Cost Curve
Reference: Ref 9-2
(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve.
According to the marginal cost curve, the approximate total cost of mowing seven
lawns is:
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