Mirco Econ - chapter one

Kimberley is studying for her math exam. If she studies for 5 hours she knows she'll get an 80, and if she studies for 6 hours, she knows she'll get a 90. Thus, the marginal benefit of the 6th hour of studying is ______. ( 15 points) ( 10 points) ( 16 points) (90 points)

10 points

According to the Incentive Principle, when the benefit of an action rises, a person

is more likely to take the action.

Suppose Warren, who owns a bakery, is deciding whether to increase his daily production of cakes. All of Warren's cakes sell for $40 each, and the average cost of making each cake is $35. Is this enough information to decide whether Warren should increase his production of cakes?

No. Reason: Warren should base his decision on the marginal benefit and marginal cost of making an additional cake, but the question does not tell us the marginal cost of making a cake. Average cost and marginal cost are not the same.

One common decision pitfall is to ______.

measure costs and benefits as proportions rather than absolute dollar amounts

(blank) economic principle is one that says how people should behave.

normative

Chris is a potter who specializes in making mugs. When he makes 10 mugs a day his total cost is $90, and when he makes 11 mugs a day, his total cost is $121. Thus, his marginal cost of making the 11th mug is

$31

If it costs Sam $150 to grow 300 tomatoes in his garden, then his average cost of growing a tomato is: ( 150) (300) (2.00) ( .50)

0.50

Suppose you're trying to decide what to cook for dinner. Both the chicken and the salmon you have in your fridge are about to go bad, and whichever one you don't eat tonight, you'll have to throw away. In deciding which one to cook, should it matter to you that the salmon was slightly more expensive than the chicken?

No. Reason: The amount you spent on the food is a sunk cost and shouldn't factor into your decision. You should just cook whichever one sounds better to you!

People sometimes apply the Cost-Benefit Principle incorrectly because they evaluate costs and benefits ______.

as proportions rather than absolute dollar amounts

An activity's ( blank) benefit is the total benefit of carrying out n units of an activity divided by

average

The total cost of carrying out n units of an activity divided by n is the activity's ( blank) cost

average

The marginal cost of carrying out an activity is the(blank)

increase in total cost that results from carrying out one additional unit of the activity.

The Incentive Principle asserts that a person ______.

is more likely to take an action if its benefit rises, and less likely to take an action if its cost rises

The increase in total cost that results from carrying out one additional unit of an activity is its ( blank) cost

marginal

The increase in total benefit that results from carrying out one additional unit of the activity is called ______.

marginal benefit

An economic principle that says how people should behave is known as a ______.

normative economic principle

A principle that predicts how people will behave is called a(n):

positive economic principle.

A positive economic principle ______.

predicts how people will behave

A normative economic principle

says how people should behave.

When making a decision, sunk costs ______.

should be ignored

Costs that are beyond recovery at the moment a decision is made ______.

should not factor into the cost--benefit calculation

A(n) (blank) cost is a cost that is beyond recovery at the moment a decision is made.

sunk

Which of the following costs should be ignored when weighing the costs and benefits of an action?

sunk cost

The average benefit of carrying out an activity is ______

the total benefit of undertaking n units of an activity divided by n

The average benefit of carrying out an activity is ______.

the total benefit of undertaking n units of an activity divided by n

The average cost of carrying out an activity is

the total cost of undertaking n units of an activity divided by n.

Opportunity cost is

the value of what must be foregone in order to undertake an activity.

According to the Incentive Principle, when the cost of an action rises, a person.

will be less likely to take the action.