BECO test 1

A construction company has built 25 houses so far this year at a total cost to the company of $7.2 million. If the company builds a 26th house, its total cost will increase to $7.5 million. Which of the following statements is correct?

For the first 25 houses, the average cost per house was $288,000.

Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $5800. Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do?

He should sell the car now for $3800.

A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?

Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. This result is an example of which principle of economics?

People respond to incentives.

Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.

The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise.

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal benefit of going to Spain increases.

Which of the following is not an example of the opportunity cost of going to school?

The money a student spends on rent for his apartment while attending school.

Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should

be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.

Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal

benefit of leaving was greater than the marginal cost.

Caroline eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

can be thought of as the total benefit Caroline enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should

compare the cost of staying one more semester to the benefits of staying one more semester.

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal

cost of teaching increased.

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a trade off between

efficiency and equality.

The overriding reason why households and societies face many decisions is that

resources are scarce.

Resources are

scarce for households and scarce for economies.

Economics deals primarily with the concept of

scarcity

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

scarcity

A marginal change is a

small, incremental adjustment.

You have driven 500 miles on a vacation and then you notice that you are only 25 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include

the cost of driving the next 25 miles, but not the cost of driving the first 500.

Ed spends an hour studying instead of watching tv with his friends. The opportunity cost to him of studying is

the enjoyment he would have received if he had watched tv with his friends.

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is

the enjoyment she would have received had she watched the video.

People are willing to pay more for a diamond than for a bottle of water because

the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

A rational decision maker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost of the action

When computing the opportunity cost of attending a concert you should include

the price you pay for the ticket and the value of your time.

The marginal benefit Claire gets from purchasing a third pair of flip-flops is

the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops.

The marginal benefit Colin gets from eating a fourth slice of pizza is

the total benefit Colin gets from eating four slices of pizza minus the total benefit Colin gets from eating three slices of pizza.

The opportunity cost of going to college is

the value of the best opportunity a student gives up to attend college.