Exam 9: Decision Making by Individuals Firms

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:

Use the following to answer questions: Figure: The Marginal Cost Curve -(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The approximate total cost of mowing seven lawns is:

After earning your BA, you have to decide whether to take 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 to pay the remaining $22,000 per year, you would have to cash in savings bonds from your grandparents that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA 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 questions: -(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the table Expected Exam Scores from Studying Economics and Accounting. If you studied for a total of three hours, your combined scores would be maximized by spending _____ hours studying economics.

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

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.

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:

Use the following to answer questions: -(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the table 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.

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.

When a decision maker chooses the option leading to the outcome that he or she most prefers, he or she has made a _____ decision.

If the marginal cost curve is upward-sloping, as output increases, marginal costs will:

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

Use the following to answer questions: Figure: The Optimal Quantity -(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the marginal benefit of lawn mowing increased, the _____ curve in the figure would shift to the _____ and the optimal quantity would be _____ five lawns mowed.

If at a given quantity MB = MC, the decision maker should do _____ of the activity.

Accounting profit differs from economic profit because:

Use the following to answer questions: -(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of Sweatshirts. The marginal benefit of producing the fifth sweatshirt is:

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?

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?

Costs that are included in the economic concept of cost but that are NOT explicit costs are: