Economics Chapter 2

Suppose that your tuition to attend college is $10,000 per year and you spend $4,000 per year on room and board. If you were working full time instead of attending college, you could earn $20,000 per year. What is your opportunity cost of attending college for one year?

$30,000

If a consumer can buy four DVDs for $44 and five DVDs for $50, then the marginal cost of the fifth DVD is:

$6.

Mark quit his job as a salesman where he made $43,000 per year to start his own t-shirt making business. His business expenses are $6,000 per year on rent, $12,000 per year on supplies, and $4,000 per year on part- time help. As for his personal expenses, his apartment costs him $4,800 per year and his personal bills are an extra $1,200 per year. What is Mark's opportunity cost of running the business?

$65,000

Nancy and Melissa both have broken light fixtures in their living rooms. Nancy opts to hire an electrician, while Melissa spends two hours replacing the fixture herself. Which of the following is a possible explanation of this behavior

A) Nancy dislikes electrical work more than Melissa. B) Melissa is better at doing electrical work than Nancy. C) The opportunity cost of Nancy's time is higher than her cost to hire an electrician. D) All of the above are possible explanations of this behavior. (D)

If the government estimates that the marginal cost of building a bridge is $100 million, while the marginal benefit is $150 million, the marginal principle dictates that the government should:

A) build the bridge.

When two people engage in voluntary trade:

Both will expect to be made better off.

You have an hour between your economics and math classes. What is the opportunity cost of that time if you use it to do math homework?

It depends on what you would do if you had no math homework.

The extra benefit resulting from a small increase in some activity is called the:

Marginal benefit.

The principle that "as one input increases while the other inputs are held fixed, output beyond some point will exhibit increases at a decreasing rate" is known as the:

Principle of diminishing returns.

Suppose it costs a firm $200 million to produce and promote a sequel. If the firm follows the marginal principle and decides not to produce the movie, which of the following must be true?

The firm believes that the marginal benefit is less than $200 billion.

Firms expect to make money on repeat business because:

The management of the firm expects both the firm and their customers to be made better off by their exchange.

A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50%. Which of the following is the most likely explanation of this finding?

The principle of diminishing returns

The opportunity cost of something is:

What you sacrifice to get it.