Question 1

Use the following to answer questions:
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. 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.
-(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and Economic Profit. The economic profit of Wang's Wicker Furniture Store is:

Accepted Answer

A)   $67,000.
B)   $0.
C)   -$20,000.
D)   -$35,000. D

Question 2

Use the following to answer questions:
Figure: Marginal Benefits and Marginal Costs 
-(Figure: Marginal Benefits and Marginal Costs) Look at the 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.

Accepted Answer

A)   40; 0
B)   30; 10
C)   20; 20
D)   10; 30 B

Question 3

Use the following to answer questions: 
-(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor and assume that marginal cost is constant in the intervals of production. If 10 slices are being produced, the marginal cost of producing one more slice of pizza is:

Accepted Answer

A)   $2.
B)   $10.
C)   $40.
D)   $70. A

Question 4

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:

Accepted Answer

A)   $94,000.
B)   $6,000.
C)   $2.05 million.
D)   $2.044 million.

Question 5

Cindy just graduated from college and started working at a large accounting firm. Although the firm will match her contributions to a retirement account, Cindy wants to wait several years before participating, since there are so many things she needs to buy right now. What type of behavior does this represent?

Accepted Answer

A)   unrealistic expectations about the future
B)   loss aversion
C)   mental accounting
D)   risk aversion

Question 6

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:

Accepted Answer

A)   go home.
B)   buy another ticket and attend the movie.
C)   buy another ticket and attend the movie only if your marginal benefit of seeing the movie is more than $14.
D)   look for the lost ticket.

Question 7

Part of the explicit cost of owning a restaurant is rent paid for the kitchen equipment.

Accepted Answer

A) True 
 B)False

Question 8

Some restaurants offer an all-you-can-eat buffet. Diners pay a flat fee to get a plate, and then they can eat as much as they want. Use marginal analysis to explain why even the hungriest of diners will eventually stop eating.

Accepted Answer

The answer of Some restaurants offer an all-you-can-eat buffet. Diners...

Question 9

While eating pizza, you discover that the marginal benefit of eating one more slice is greater than the marginal cost of that slice. You conclude that:

Accepted Answer

A)   you will be better off if you eat one more slice.
B)   you will be no better off and no worse off if you eat one more slice.
C)   you will be worse off if you eat one more slice.
D)   the total cost of eating the pizza will be more than the total benefit of eating the pizza.

Question 10

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 fourth sweatshirt is:

Accepted Answer

A)   $58.
B)   $14.
C)   $13.
D)   $12.

Question 11

Economic profits are calculated by:

Accepted Answer

A)   taking the difference between total revenue and the sum of explicit and implicit costs.
B)   taking the difference between total revenue and explicit costs only.
C)   taking the difference between the total revenue and implicit costs only.
D)   summing total revenue, explicit costs, and implicit costs.

Question 12

Use the following to answer questions: 
-(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. What is the optimal level of production?

Accepted Answer

A)   5 slices
B)   10 slices
C)   15 slices
D)   20 slices

Question 13

Marginal analysis is relevant for:

Accepted Answer

A)   both "either-or" and "how much" decisions.
B)   only "either-or" decisions.
C)   only "how much" decisions.
D)   only situations involving the time value of money.

Question 14

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

Accepted Answer

A)   $17.
B)   $15.
C)   $13.
D)   $11.

Question 15

Use the following to answer questions:
Figure: The Marginal Benefit Curve 
-(Figure: The Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve. The total benefit of mowing six lawns is approximately:

Accepted Answer

A)   $19.
B)   $35.
C)   $154.
D)   $200.

Question 16

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:

Accepted Answer

A)   $35,000.
B)   $125,000.
C)   $115,000.
D)   $25,000.

Question 17

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, the store's accounting profit equaled:

Accepted Answer

A)   $10,000.
B)   $50,000.
C)   $100,000.
D)   $200,000.

Question 18

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

Accepted Answer

A)   $8.
B)   $12.
C)   $45.
D)   $70.

Question 19

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

Accepted Answer

A)   society's well-being can be improved if production increases.
B)   society's well-being can be improved if production decreases.
C)   society's well-being cannot be improved by changing production.
D)   the market is producing too much of the good.

Question 20

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

Accepted Answer

A)   two.
B)   three.
C)   four.
D)   five.

Exam 9: Decision Making by Individuals Firms

Use the following to answer questions: -(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor and assume that marginal cost is constant in the intervals of production. If 10 slices are being produced, the marginal cost of producing one more slice of pizza is:

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:

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:

Part of the explicit cost of owning a restaurant is rent paid for the kitchen equipment.

Some restaurants offer an all-you-can-eat buffet. Diners pay a flat fee to get a plate, and then they can eat as much as they want. Use marginal analysis to explain why even the hungriest of diners will eventually stop eating.

While eating pizza, you discover that the marginal benefit of eating one more slice is greater than the marginal cost of that slice. You conclude that:

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 fourth sweatshirt is:

Economic profits are calculated by:

Use the following to answer questions: -(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. What is the optimal level of production?

Marginal analysis is relevant for:

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

Use the following to answer questions: Figure: The Marginal Benefit Curve -(Figure: The Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve. The total benefit of mowing six lawns is approximately:

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, the store's accounting profit equaled:

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

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

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