Exam 9: Decision Making by Individuals and Firms

If the marginal benefit received from consuming a good is less than the marginal cost of production:

Which type of behavior is a systematic mistake that leads to irrational decisions?

Use the following to answer question: -(Figure: The Optimal Quantity)Use Figure: 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 _____.

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.

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:

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:

Use the following to answer question: -(Figure: The Marginal Analysis of Cell Phones)Use Figure: The Marginal Analysis of Cell Phones.You are considering purchasing cell phones for your department.If you buy the fifth cell phone,your change in total profit will be equal to:

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 _____.

(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.

(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.

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.

Part of the _____ associated with the Chicago Cubs baseball team is their batting cages used in practice.

Use the following to answer question: -(Table: The Benefit of Producing Gadgets)Use Table: The Benefit of Producing Gadgets.The marginal benefit of consuming gadgets is:

Which type of behavior is NOT a common mistake that leads to irrational decisions?

Anytime the marginal benefit of an activity is greater than zero,more activity should be undertaken.

Use the following to answer question: -(Figure: Marginal Benefits and Marginal Costs)Use Figure: Marginal Benefits and Marginal Costs.More time spent studying economics adds points to economics scores (MB)but subtracts points from accounting scores (MC).The marginal benefit of studying economics for two hours is _____ points,and the marginal cost is _____ points.

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:

In economics,the assumption is that consumers and firms will make choices that maximize the _____ of each activity.

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?

(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.