Chapter 1 Micro

If the benefits (correctly defined) of a doing something are greater than the costs (correctly defined) of doing whatever it is, what should one do? A Always do it B Only decide to do it if it is the best choice C Only decide to do it if there is no opportunity cost

A

Is the money, you could have earned instead of going to college, part of the cost of going to college? A Yes B No C A portion of it is

A

Is tuition a part of the cost of deciding to go to college? A Yes B No C Part of room and board may be part of the cost.

A

A classic movie about the end of the world showed a floating island on what was the Pacific Ocean. In the middle of the movie filming, the set sank in a hurricane. The producers who had already spent $70 million on the set were faced with a new cost of $50 million to rebuild the set. Expected additional costs continued to be $100 million. The expected revenues were $160 million. Should they have rebuilt the set and finished the movie? A Yes. The set sank. What is it about sunk costs that you do not understand? B No. the loss on the movie was $160 million minus $220 million, a loss of $60,000. C One cannot tell. They may have thought that revenues would be higher. D One cannot tell. They may have thought that costs from that point on might have been lower.

A

What is the opportunity cost of college? Determine whether the following costs are opportunity costs or not. 1 Tuition 2 Student fees 3 Transportation 4 Books 5 Salary 6 Insurance 7 Room and board

1 OC 2 OC 3 OC 4 OC 5 OC 6 Not an OC 7 not an OC

A small clothing firm currently produces 50,000 shirts and blouses per month. The costs of its factory, raw materials, and labor is $500,000 per month. If the company is to increase production by 5,000 and that requires an additional labor and raw material expense of $100,000, what is the best estimate of costs of the increased production? A $100,000 B $400,000 C $500,000 D $600,000

A

Finally, consider perhaps the most difficult concept connected to opportunity cost. Suppose that you have purchased the ticket for $50. There is no scalping market. (People can buy tickets at the box office and it is illegal to buy or sell tickets from or to anyone else.) Also, suppose that the box office will not refund the ticket price once the ticket has been purchased. What is your opportunity cost of attending the concert in this case? A Zero, plus what I would have done with my time. B $50, plus what I would have done with my time. C $120, plus what I would have done with my time. D None of the above

A

I started a business last year. My revenues were $100,000. My rent and materials costs were $60,000. My best alternative was and is to go to work for a company in a job that would pay me $30,000. The "true" profits from my business were _____. A $10,000 B $30,000 C $40,000 D $90,000 E $240,000

A

Last year, you purchased land to build a retail store. You paid $20 million for the land. Another business has now offered $8 million for the land and that is the highest price your business should now be able to get for the land. Which of the following costs is relevant for your decision as to whether or not you should build a new retail store? A $8 million B $12 million C $20 million D $28 million

A

Why is it so difficult to ignore costs we have actually already paid? A Because they are explicit and we actually handed over a check. B Because we should not count them as costs. C Because they are not actually costs.

A

Good economic decision-making means which of the following? A Comparing all of the benefits with all of the costs related to the production and enjoyment of a good B Thinking about marginal benefits and marginal costs of the good and services C Thinking about average benefits and average costs of the goods and services

B

I am thinking about going out to visit with some friends tonight. Given what I have learned in economics, I am comparing my costs with my expected benefits. My alternatives in order of preference are to stay in my room and watch TV; stay in my room and study economics; have my friends over to my room; or go to bed early tonight. What are the costs relevant to my decision? A The benefits gained from going out to visit some friends B The benefits gained from staying in my room and watching TV C The benefits gained from watching TV, studying economics, having my friends over, and going to bed early D The benefits gained from one or two of the alternatives, but not all of them E None of the above is correct

B

In question 1.32, what is the cost per shirt before the increase in production? Part of the information is repeated for you below. A small clothing firm currently produces 50,000 shirts and blouses per month. The costs of its factory, raw materials, and labor is $500,000 per month. If it is to increase production by 5,000, that requires an additional labor and raw material expense of $100,000. A $5 B $10 C $20 D $50 E $100

B

Some friends and I are heading to a concert. We all have purchased $50 tickets. I just realized that I lost my ticket on the subway ride to the concert. I am confronted now with a decision of whether or not to buy a new ticket and go to the concert . Which of the following best describes that decision? A Is the concert worth paying $100 to attend? B Is the concert worth paying $50 to attend? C Is the concert worth paying $150 to attend?

B

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. Losses for the producers of Waterworld, if they finished the movie would be ______. If they did not finish the movie, losses would be ______. A $50 million; $50 million. B $50 million; $70 million. C $70 million; $50 million. D $70 million; $70 million.

B

Tonight I can either (1) go out to dinner and a movie, or (2) cook dinner for some friends, or (3) eat a hamburger at the baseball game. I prefer to do (1), then (2), and finally (3) if I can only do one. If these are my best choices and the dollar cost of each is the same, what would be the opportunity cost of my going out to dinner and a movie? A A hamburger at the baseball game B Cooking dinner for some friends C A hamburger at the baseball game and cooking dinner for some friends

B

If a good or service is scarce, which of the following is true? A There is a shortage at the going market price. B Buyers cannot afford to purchase the product C We must give something up if we want more of the good. D It is difficult to find the product in stores.

C

Clear skies and clear rivers are scarce goods. True or false? A True, we don't have enough of either one. B False, we don't have to give up anything to them. C False, only economic goods produced by workers and capital are scarce. D Maybe, but only if they are in those areas of the world where we may have to give something else up in order to enjoy clear skies or clear rivers. E They are gifts from nature, not economic goods.

D

If I have to drop out of college, it will cost me all of the tuition I have paid and the income I could have earned during those years while I was in college. True or false. A True. These were opportunity costs of staying in college. B True. These are sunk costs. I cannot change the tuition paid and income lost. So they are not costs of dropping out. C False. I did not pay these costs. D False. I did pay these costs, but they are sunk and thus not relevant to the decision.

D

Suppose your parents inherit your grandparents' house. They decide to move into the house and sell your current house. They did so because the house was free. Good decision? A A good decision. They will save so much money. B Maybe a good decision if they want to spend what they could get for your current house. C Not a good decision. They are giving up the house you grew up in. D Not a good decision, based on the assumption that it is free. It is not free.

D

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. The sunk cost, once the movie set sank, was _______. A $10 million B $50 million C $60 million D $70 million

D

Which of the following is most likely a scarce good? A Clean air in Northern Canada B Clean air in a town with many polluting automobiles C Both of the above are scarce goods

B

he making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. Should they have rebuilt the set and finished the movie? A No, it was not rational. B Yes, it was rational. C I cannot tell.

B

In every economy, resources are limited, but wants are large and increasing. What is this condition called? A The opportunity cost of resources B The opportunity cost of wants C Scarcity D Marginal cost

C

Is room and board part of the cost of the decision to go to college? A Yes B No C Part of room and board may be part of the cost.

C

Is the income you could earn after going to college part of the cost of going to college? A A portion of it is B Yes C No

C

What is the opportunity cost of a small business investing $1 million in a new project that will pay back $1.5 million in one year? The firm's goal is to end the year with the most assets possible. Its other alternatives are: I. Leave $1 million in a bank account and earn $50,000 in interest. II. Invest $1 million in new equipment that will have a value of $1 million at the end of the year and have earned an additional $100,000 in profits during the year What is the opportunity cost of the new project? A $1,000,000 B $1,050,000 C $1,100,000 D $1,150,000

C

Which of the following does not represent an opportunity cost of attending college? A Tuition paid B Amount that one could have earned instead of going to college C Food D Books purchased at college

C

Why is it so difficult to consider costs that we have not physically paid as part of the cost of the decision? A Because they are not actually costs B Because they will only be costs once they are paid. C Because we have not directly paid someone.

C

Your college purchased a building east of campus for $500,000. Given changes in the city's real estate market, the current market value of the building is now $2 million. The total value of the use of the building for the college is estimated to be $1.5 million. What should your college do? Explain why. A Not use the building. It would be a loss of $2 million. B Use the building. The gain would be $1.5 million. C Not use the building. Using the building would mean losing $ .5 million in doing so. D Use the building. They only paid $500,000. It's value is $1.5 million. They gain $1 million.

C

Tickets to a sold-out basketball game originally cost $50 each and cannot be returned. I bought one and now scalpers are willing to pay $125 for the ticket. The cost that should be considered if I am deciding whether or not to go to the game is _____. A 0 B $50 C $75 D $125 E $175

D

A business has spent $50 million dollars on development of a new laptop. It must spend an additional $20 million to bring the finished computer to market. What must the value of the investment be for it to make sense for the business? A Any amount over $20 million. B Any amount over $50 million. C Any amount over $70 million. D The value, if any, of the results of the $50 million spent so far. E The value, if any, of the results of the $50 million spent so far, plus the $20 million.

E

The opportunity cost of spending a night with friends is which of the following? A The movie I could have seen B The several hours of sleep I could have had C The better grade I could have earned with more study D All of the above E A, B, or C, but not all of them

E