Question 1

It is not possible to earn an economic profit without also earning an accounting profit.

Accepted Answer

A) True 
 B)False

Question 2

Use the following to answer questions:  
-(Table: TC's Pizza Parlor) Look at the table 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?

Accepted Answer

A)  $3 
B)  $2 
C)  $15 
D)  $55 
A)  $3 
B)  $2 
C)  $15 
D)  $55

Question 3

Which of the following is a systematic mistake that leads to irrational decisions?

Accepted Answer

A)  risk aversion 
B)  bounded rationality 
C)  maximizing profit rather than minimizing costs 
D)  overconfidence 
A)  risk aversion 
B)  bounded rationality 
C)  maximizing profit rather than minimizing costs 
D)  overconfidence

Question 4

Which of the following is an example of bounded rationality?

Accepted Answer

A)  Ann proofreads her term paper six times. 
B)  Mary feels that she has studied enough to make an A+ on her economics exam but studies another two hours just to be sure. 
C)  Tim studies only an hour on the morning of his economics exam because he is satisfied just to make a passing grade. 
D)  Terry does his economics homework twice to be sure that he has a thorough understanding of the topic. 
A)  Ann proofreads her term paper six times. 
B)  Mary feels that she has studied enough to make an A+ on her economics exam but studies another two hours just to be sure. 
C)  Tim studies only an hour on the morning of his economics exam because he is satisfied just to make a passing grade. 
D)  Terry does his economics homework twice to be sure that he has a thorough understanding of the topic.

Question 5

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 _____.

Accepted Answer

A)  $175,000; $67,000 
B)  $170,000; $67,000 
C)  $200,000; $72,000 
D)  $170,000; $70,000 
A)  $175,000; $67,000 
B)  $170,000; $67,000 
C)  $200,000; $72,000 
D)  $170,000; $70,000

Question 6

The habit of mentally assigning dollars to different accounts so that some dollars are worth more than others is:

Accepted Answer

A)  status quo bias. 
B)  bounded rationality. 
C)  loss aversion. 
D)  mental accounting. 
A)  status quo bias. 
B)  bounded rationality. 
C)  loss aversion. 
D)  mental accounting.

Question 7

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.

Accepted Answer

A)  implicit 
B)  explicit 
C)  direct 
D)  total 
A)  implicit 
B)  explicit 
C)  direct 
D)  total

Question 8

According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____.

Accepted Answer

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 
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

Question 9

Economic profit is:

Accepted Answer

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. 
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.

Question 10

When a person makes a quick decision without taking the time to compare the opportunity cost of all possible options, he or she is using:

Accepted Answer

A)  bounded rationality. 
B)  risk aversion. 
C)  loss aversion. 
D)  the status quo. 
A)  bounded rationality. 
B)  risk aversion. 
C)  loss aversion. 
D)  the status quo.

Question 11

Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years. However, Lucy refuses to sell the stock, thinking that if she waits long enough, she will recover her investment. What type of behavior does this represent?

Accepted Answer

A)  mental accounting 
B)  bounded rationality 
C)  risk aversion 
D)  loss aversion 
A)  mental accounting 
B)  bounded rationality 
C)  risk aversion 
D)  loss aversion

Question 12

Economic profits can be negative even if accounting profits are positive.

Accepted Answer

A) True 
 B)False

Question 13

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 decreased, the _____ curve in the figure would shift to the _____ and the optimal quantity would be _____ five lawns mowed.

Accepted Answer

A)  marginal benefit; right; more than 
B)  marginal cost; right; fewer than 
C)  marginal benefit; left; fewer than 
D)  marginal cost; left; more than 
A)  marginal benefit; right; more than 
B)  marginal cost; right; fewer than 
C)  marginal benefit; left; fewer than 
D)  marginal cost; left; more than

Question 14

Use the following to answer questions:  
-(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed 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?

Accepted Answer

A)  0 
B)  1 
C)  2 
D)  5 
A)  0 
B)  1 
C)  2 
D)  5

Question 15

To determine the quantity of any activity that will maximize total profit, economists employ the:

Accepted Answer

A)  average decision rule. 
B)  total decision rule. 
C)  principle of marginal analysis. 
D)  principle of average analysis. 
A)  average decision rule. 
B)  total decision rule. 
C)  principle of marginal analysis. 
D)  principle of average analysis.

Question 16

Use the following to answer questions:
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) Given the information provided, Betty's implicit costs are:

Accepted Answer

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. 
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.

Question 17

Suppose Joan buys a new refrigerator to replace her old one that suddenly quit working. If Joan buys the model on closeout sale and doesn't take time to do research on repair records and energy efficiency of various other models, she is using:

Accepted Answer

A)  status quo decision making. 
B)  bounded rationality. 
C)  marginal analysis. 
D)  risk aversion. 
A)  status quo decision making. 
B)  bounded rationality. 
C)  marginal analysis. 
D)  risk aversion.

Question 18

Use the following to answer questions:
Figure: The Optimal Quantity  
-(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the cost of lawn mowing decreased for all quantities of lawns mowed, the _____ curve in the figure would shift to the _____ and the total profit would _____.

Accepted Answer

A)  marginal benefit; right; increase 
B)  marginal cost; right; increase 
C)  marginal benefit; left; decrease 
D)  marginal cost; left; decrease 
A)  marginal benefit; right; increase 
B)  marginal cost; right; increase 
C)  marginal benefit; left; decrease 
D)  marginal cost; left; decrease

Question 19

To maximize total profit from a particular activity, consumers and firms evaluate each activity at the:

Accepted Answer

A)  average. 
B)  top. 
C)  margin. 
D)  end. 
A)  average. 
B)  top. 
C)  margin. 
D)  end.

Question 20

Use the following to answer questions:  
-(Table: Marginal Analysis of Sweatshirt Production II) Look at the table Marginal Analysis of Sweatshirt Production II. The profit at the optimal quantity of sweatshirts is:

Accepted Answer

A)  $15. 
B)  $16. 
C)  $48. 
D)  $80. 
A)  $15. 
B)  $16. 
C)  $48. 
D)  $80.

It is not possible to earn an economic profit without also earning an accounting profit.

Use the following to answer questions: -(Table: TC's Pizza Parlor) Look at the table 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?

Which of the following is a systematic mistake that leads to irrational decisions?

Which of the following is an example of bounded rationality?

The habit of mentally assigning dollars to different accounts so that some dollars are worth more than others is:

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.

According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _ the marginal cost, _.

Economic profit is:

When a person makes a quick decision without taking the time to compare the opportunity cost of all possible options, he or she is using:

Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years. However, Lucy refuses to sell the stock, thinking that if she waits long enough, she will recover her investment. What type of behavior does this represent?

Economic profits can be negative even if accounting profits are positive.

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 decreased, the ___ curve in the figure would shift to the _ and the optimal quantity would be ___ five lawns mowed.

Use the following to answer questions: -(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed 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?

To determine the quantity of any activity that will maximize total profit, economists employ the:

Suppose Joan buys a new refrigerator to replace her old one that suddenly quit working. If Joan buys the model on closeout sale and doesn't take time to do research on repair records and energy efficiency of various other models, she is using:

Use the following to answer questions: Figure: The Optimal Quantity -(Figure: The Optimal Quantity) Look at the figure The Optimal Quantity. If the cost of lawn mowing decreased for all quantities of lawns mowed, the ___ curve in the figure would shift to the _ and the total profit would ___.

To maximize total profit from a particular activity, consumers and firms evaluate each activity at the:

Use the following to answer questions: -(Table: Marginal Analysis of Sweatshirt Production II) Look at the table Marginal Analysis of Sweatshirt Production II. The profit at the optimal quantity of sweatshirts is:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 9: Decision Making by Individuals Firms

It is not possible to earn an economic profit without also earning an accounting profit.

Use the following to answer questions: -(Table: TC's Pizza Parlor) Look at the table 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?

Which of the following is a systematic mistake that leads to irrational decisions?

Which of the following is an example of bounded rationality?

The habit of mentally assigning dollars to different accounts so that some dollars are worth more than others is:

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.

According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____.

Economic profit is:

When a person makes a quick decision without taking the time to compare the opportunity cost of all possible options, he or she is using:

Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years. However, Lucy refuses to sell the stock, thinking that if she waits long enough, she will recover her investment. What type of behavior does this represent?

Economic profits can be negative even if accounting profits are positive.

Use the following to answer questions: -(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed 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?

To determine the quantity of any activity that will maximize total profit, economists employ the:

Suppose Joan buys a new refrigerator to replace her old one that suddenly quit working. If Joan buys the model on closeout sale and doesn't take time to do research on repair records and energy efficiency of various other models, she is using:

To maximize total profit from a particular activity, consumers and firms evaluate each activity at the:

Use the following to answer questions: -(Table: Marginal Analysis of Sweatshirt Production II) Look at the table Marginal Analysis of Sweatshirt Production II. The profit at the optimal quantity of sweatshirts is:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _ the marginal cost, _.