Question 1

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) Betty is trying to decide at what point she should stop selling cookies, and she knows she cannot change the price of a cookie. She should stop selling cookies if:

Accepted Answer

A)  her economic profit is positive. 
B)  her explicit and implicit costs are less than her revenues. 
C)  her implicit costs are greater than her accounting profits. 
D)  her economic profit is equal to her accounting profit.

Question 2

The purpose of behavioral economics is to determine why:

Accepted Answer

A)  people maximize utility. 
B)  firms maximize profit and minimize costs. 
C)  people make decisions that appear to be irrational. 
D)  markets usually behave in an efficient manner.

Question 3

A "how much" decision is best made by comparing the _____ of an action to the _____ of that action.

Accepted Answer

A)  explicit costs; implicit costs 
B)  accounting profit; economic profit 
C)  marginal benefits; marginal costs 
D)  present value; net present value

Question 4

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 seven lawns is approximately:

Accepted Answer

A)  $172. 
B)  $140. 
C)  $60. 
D)  $18.

Question 5

The decision to tip a server is:

Accepted Answer

A)  a rational decision if the person leaving the tip is concerned about fairness. 
B)  an irrational economic decision because it reduces the economic payoff of the tipper. 
C)  an example of decision making using bounded rationality. 
D)  an example of behavior based on risk aversion.

Question 6

Use the following to answer questions:
Figure: The Marginal Analysis of Cell Phones 
-(Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal Analysis of Cell Phones. You are considering purchasing cell phones. How many cell phones will you consume?

Accepted Answer

A)  one 
B)  two 
C)  three 
D)  four

Question 7

When making decisions, a person should consider only 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.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

Expenses associated with factors of production may be _____ costs.

Accepted Answer

A)  implicit 
B)  opportunity 
C)  explicit 
D)  implicit, opportunity, or explicit

Question 10

A rational economic decision:

Accepted Answer

A)  must always result in the largest economic payoff. 
B)  usually results in the smallest economic payoff. 
C)  may or may not result in the largest economic payoff. 
D)  is concerned with efficiency but not with equity or fairness.

Question 11

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 implicit cost of capital for Wang's Wicker Furniture Store is:

Accepted Answer

A)  $0. 
B)  $2,000. 
C)  $5,000. 
D)  $50,000.

Question 12

In economic analysis, the principle of marginal analysis refers to:

Accepted Answer

A)  dividing large problems into smaller, more manageable ones. 
B)  the notion that a group's problems can be effectively analyzed by focusing on only a small subsample of the group. 
C)  the result that the optimal quantity of an activity is that at which marginal benefit is equal to marginal cost. 
D)  the result that the optimal quantity of an activity is that at which the net benefit of the representative, or marginal, individual is maximized.

Question 13

Use the following to answer questions: 
-(Table: Tutoring) Look at the table Tutoring. If he can charge all students their willingness to pay, at the optimal hours of tutoring, Sigmund's total profit is:

Accepted Answer

A)  $60. 
B)  $50. 
C)  $30. 
D)  $15.

Question 14

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 opportunity (or marginal) cost in terms of your accounting score of spending the first hour studying economics is _____ points.

Accepted Answer

A)  0 
B)  5 
C)  10 
D)  15

Question 15

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 should be reduced 
D)  more than; net benefit is maximized

Question 16

Use the following to answer questions: 
-(Table: Tutoring) Look at the table Tutoring. If the college requires all tutors to register with the dean and charges each tutor $10 to register and if Sigmund can charge all students their willingness to pay, his total profit from tutoring will be:

Accepted Answer

A)  $10. 
B)  $20. 
C)  $30. 
D)  $40.

Question 17

If the marginal benefit received from consuming a good is equal to the marginal cost of production:

Accepted Answer

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

Question 18

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 the games are free, how many games should he attend?

Accepted Answer

A)  1 
B)  5 
C)  7 
D)  8

Question 19

The dormitories of Eastland College are part of its:

Accepted Answer

A)  land. 
B)  labor. 
C)  capital. 
D)  explicit costs.

Question 20

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 but (MB) subtracts points from accounting scores (MC). When Claudia studies economics for four hours, the marginal benefit is _____ points; when she studies for six hours, the marginal benefit is _____ points.

Accepted Answer

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

Exam 9: Decision Making by Individuals Firms

The purpose of behavioral economics is to determine why:

A "how much" decision is best made by comparing the _ of an action to the _ of that action.

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 seven lawns is approximately:

The decision to tip a server is:

Use the following to answer questions: Figure: The Marginal Analysis of Cell Phones -(Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal Analysis of Cell Phones. You are considering purchasing cell phones. How many cell phones will you consume?

When making decisions, a person should consider only 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.

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.

Expenses associated with factors of production may be _____ costs.

A rational economic decision:

In economic analysis, the principle of marginal analysis refers to:

Use the following to answer questions: -(Table: Tutoring) Look at the table Tutoring. If he can charge all students their willingness to pay, at the optimal hours of tutoring, Sigmund's total profit is:

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

Use the following to answer questions: -(Table: Tutoring) Look at the table Tutoring. If the college requires all tutors to register with the dean and charges each tutor $10 to register and if Sigmund can charge all students their willingness to pay, his total profit from tutoring will be:

If the marginal benefit received from consuming a good is equal to the marginal cost of production:

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 the games are free, how many games should he attend?

The dormitories of Eastland College are part of its: