Chapter 9 Micro

The present value of future payments depends on: a. whether the payment is interest or dividends. b. the marginal propensity to save. c. the interest rate. d. sunk costs.

c. the interest rate.

You receive an e-mail from a firm proposing the following business deal. They will send you $1,000 now, and in exchange you will send them $1,100 in one year. You will just break even from this deal if the interest rate is: a. 12%. b. 4%. c. 6%. d. 10%.

d. 10%

Sunk costs: a. are not considered in marginal analysis. b. help to determine the optimal quantity of an activity. c. can dramatically increase marginal costs. d. are the same as variable costs.

a. are not considered in marginal analysis.

For most firms, economic profit is: a. less than accounting profit. b. equal to accounting proft c. greater than accounting profit. d. negative

a. less than accounting profit.

The ________ the time period, the ________ is the present value of a given future payment, all other things held constant. a. longer; lower b. shorter; lower c. longer; higher d. shorter; the more uncertain

a. longer; lower

In economics the assumption is made that consumers and firms will make choices that maximize the ________ of each activity. a. total net benefit b. total benefit c. sum of total benefit and total cost d. product of total benefit and total cost

a. total net benefit

Joan loves to eat sushi. Her first piece of sushi normally yields a marginal benefit of $5. Each additional piece creates a declining marginal benefit by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sushi, how many pieces should she eat? a. 8 b. 10 c. 5 d. 11

b. 10

According to the optimal output rule, if marginal benefit: a. exceeds marginal cost, an activity should be reduced. b. is less than marginal cost, an activity should be reduced. c. is equal to marginal cost, an activity should be reduced. d. exceeds marginal cost, net benefit is maximized.

b. is less than marginal cost, an activity should be reduced.

The amount by which an additional unit of an activity increases total benefit is: a. net benefit b. marginal benefit c. marginal cost d. utility

b. marginal benefit

The ________ the future payment, the ________ its present value, all other things held constant. a. smaller; the more uncertain is b. bigger; smaller c. bigger; greater d. smaller; greater

c. bigger; greater

Accountants use only ________ costs in their computations of short-run total cost. a. opportunity b. implicit c. explicit d. variable

c. explicit

Total net gain is maximized when marginal benefit ________ marginal cost. a. exceeds b. is less than c. is equal to d. approaches

c. is equal to

According to the optimal output rule, if marginal benefit: a. exceeds marginal cost, an activity should be reduced. b. is less than marginal cost, an activity should be increased. c. is equal to marginal cost, net benefit is maximized. d. exceeds marginal cost, net benefit is maximized.

c. is equal to marginal cost, net benefit is maximized.

The implicit cost of capital is: a. the expense associated with leasing machines. b. the expense associated with buying machines. c. the opportunity cost of capital used by a business d. irrelevant for determining economic profit.

c. the opportunity cost of capital used by a business

The principle of marginal analysis refers to: a. a method of analysis that divides large problems into smaller, more manageable ones. b. the notion that problems facing a group of individuals 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.

c. the result that the optimal quantity of an activity is that at which marginal benefit is equal to marginal cost.

In economics a "marginal" value refers to: a. the value associated with an unimportant, or marginal, activity. b. a value entered as an explanatory item in the margin of a balance sheet or other accounts. c. the value associated with one more unit of an activity. d. a value that is most appropriately identified in a footnote.

c. the value associated with one more unit of an activity.

Profit is the difference between ________ and ________. a. total sales; total revenues b. total profits; total costs c. total revenues; total costs d. marginal costs; marginal revenues

c. total revenues; total costs

Accounting profit differs from economic profit because: a. of differences in the manner in which revenue is calculated. b. economic costs include depreciation, while accounting costs do not. c. accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs, while economic costs include only explicit costs. d. economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

d. economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

The dollar amount of a future payment is ________ its present value. a. exactly the same as b. approximately the same as c. less than d. greater than

d. greater than

Which of the following best describes a "how much" decision? a. should i drive to work or ride by bike? b. Should I rent a movie or watch a baseball game on television? c. Should I attend graduate school or immediately enter the labor force? d. should I buy a third hot dog?

d. should I buy a third hot dog?

The net present value of a project is the difference between: a. current benefits and the present value of future costs. b. the present value of current benefits and the current value of future costs. c. the present value of future benefits and the present value of future costs. d. the present value of current and future benefits and the present value of current and future costs.

d. the present value of current and future benefits and the present value of current and future costs.