econ chapter 9

When a decision maker chooses the option leading to the outcome that he or she most prefers, he or she has made a _____ decision. loss-minimizing profit-maximizing irrational rational

rational

The willingness to sacrifice some economic payoff to avoid a potential loss is: risk aversion. the result of a concern about fairness. irrational behavior. bounded rationality.

risk aversion

Which of the following is NOT a common mistake that leads to irrational decisions? misperceptions about opportunity costs mental accounting risk aversion loss aversion

risk aversion

If the marginal benefit received from consuming a good is less than the marginal cost of production: the market is producing too little of the good. society's well-being cannot be improved by changing production. society's well-being can be improved if production increases. society's well-being can be improved if production decreases.

society's well-being can be improved if production decreases.

If the marginal benefit received from consuming a good is greater than the marginal cost of production: society's well-being cannot be improved by changing production. society's well-being can be improved if production decreases. the market is producing too much of the good. society's well-being can be improved if production increases

society's well-being can be improved if production increases

If the marginal benefit received from consuming a good is equal to the marginal cost of production: society's well-being can be improved if production decreases. society's well-being can be improved if production increases. society's well-being cannot be improved by changing production. the market is producing too much of the good.

society's well-being cannot be improved by changing production

Sally must submit a form to enroll in her company's flexible medical benefits program. Although she has been employed over a year, she has yet to complete the form. Which type of irrational behavior does this represent? status quo bias risk aversion mental accounting loss aversion

status quo bias

If marginal costs of production are greater than marginal benefits of production: costs will eventually decrease. not all costs are being considered. too much of the good is being produced. more of the good should be produced.

too much of the good is being produced

The implicit cost of capital is: -depreciation. -the explicit cost of capital that the firm might have used but didn't need to. -the opportunity cost of the capital used by a business. -the cost of human capital.

the opportunity cost of the capital used by a business

In economic analysis, the principle of marginal analysis refers to: dividing large problems into smaller, more manageable ones. the result that the optimal quantity of an activity is that at which the net benefit of the representative, or marginal, individual is maximized. the notion that a group's problems can be effectively analyzed by focusing on only a small subsample of the group. the result that the optimal quantity of an activity is that at which marginal benefit is equal to marginal cost

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

A sunk cost should be ignored in decisions about future actions. True False

true

If the marginal cost of any activity is constant at $4, then at the optimal quantity of the activity, the marginal benefit will be $4. False True

true

While eating pizza, you discover that the marginal benefit of eating one more slice is greater than the marginal cost of that slice. You conclude that: you will be worse off if you eat one more slice. you will be no better off and no worse off if you eat one more slice. you will be better off if you eat one more slice. the total cost of eating the pizza will be more than the total benefit of eating the pizza

you will be better off if you eat one more slice

Wendy sells ice-making machines. She can sell six per week at a price of $2,000 per machine. If she charges $2,100 per machine, she will sell only five per week. The marginal benefit of selling the sixth ice-making machine is: $1,500. $12,000. $2,100. $2,000.

$1,500

Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at least _____ and the marginal benefit from the third slice must be less than _____. $3.50; $1.00 $3.50; $4.50 $1.50; $4.50 $1.50; $1.00

$1.50; $1.00

Werner installs custom sound systems in cars. If he installs seven systems per day, his total costs are $300. If he installs eight systems per day, his total costs are $400. Werner will install eight sound systems per day only if the eighth customer is willing to pay at least: $50. $400. $300. $100.

$100

You have rented your first apartment, signing a lease that commits you to pay $500 each month for 12 months. You have an opportunity to take a trip to Europe during the entire month of June, and you will spend $2,000 traveling. Your apartment will be vacant, but because of your lease, you must still pay the rent. The cost of taking the trip to Europe is: a. $2,500, because this is your total spending during the month of June. b. $1,500, because the June rent is an opportunity cost of traveling that must be deducted from the explicit cost of the trip. c. $2,500, because the June rent is an opportunity cost of traveling and must be added to the explicit cost of the trip. d. $2,000, because the $500 for your June rent is a sunk cost.

$2,000, because the $500 for your June rent is a sunk cost

Betty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it. Reference: Ref 9-18 (Scenario: Betty's Cookie Shop) Betty's implicit and explicit costs are equal to: $80,000. $184,500. $100,000. $204,500.

$204,500

Some highways have one lane; others have two, three, or more. If each lane costs $10 million per mile, an economist assumes that the total benefit of a three-lane highway must be _____ million per mile. $10 to $20 less than $10 $30 or more $20 to $30

$30 or more

After earning your BA, you have to decide whether to take a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but to pay the remaining $22,000 per year, you would have to cash in savings bonds from your grandparents that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA is: $67,500. $77,000. $99,000. $77,500.

$67,500

Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred _____ in _____ costs. $43,002; explicit $43,002; implicit $86,004; explicit $86,004; implicit

$86,004; implicit

Until recently Rosemarie worked as an accountant, earning $30,000 annually. Then she inherited a piece of commercial real estate that had been renting for $12,000 annually. Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited. At the end of the first year, her books showed total revenues of $260,000 and total costs of $230,000 for food, utilities, cooks, and other supplies. Her economic profit at the end of one year is: $230,000. -$12,000. $0. $30,000.

-$12,000

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

10

If at a given quantity _____, the decision maker should do _____ of the activity. MB < MC; that amount MB > MC; more MB > MC; none MB < MC; more

MB > MC; more

The costs economists use in the concept of economic profit are: - accounting costs and implicit costs (i.e., the value of the best opportunity forgone). - strictly dollar costs, not opportunity costs. - accounting costs. - only implicit costs.

accounting costs and implicit costs (i.e., the value of the best opportunity forgone)

Sunk costs: affect economic profit. are the same as marginal costs. are an important component of marginal analysis. are the losses associated with failed business ventures.

affect economic profit

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

are not considered in marginal analysis

When a person makes a quick decision without taking the time to compare the opportunity cost of all possible options, he or she is using: the status quo. bounded rationality. loss aversion. risk aversion.

bounded rationality

Part of the _____ associated with the Chicago Cubs baseball team is their batting cages used in practice. capital land labor entrepreneurship

capital

The dormitories of Eastland College are part of its: land. explicit costs. labor. capital.

capital

Learning effects often result in _____ marginal costs. random decreasing increasing constant

decreasing

Anytime the marginal benefit of an activity is greater than zero, more activity should be undertaken. False True

false

Sara spends $25 for an all-day ticket to an amusement park. After one ride, it begins to rain and she wishes she had never come. Since she has already paid for her ticket, she should stay at the amusement park until it closes or she has wasted her $25. True False

false

The government should spend whatever amount is necessary to save a life. False True

false

When making decisions, a person should consider only costs that actually involve an explicit money outlay. This is because such costs actually have to be paid, whereas implicit costs are only notional or hypothetical. False True

false

To maximize her grade in economics, Stacey should study until: - her marginal benefit of studying begins to decrease. - her marginal benefit of studying equals her marginal cost of studying. - her marginal cost of studying reaches zero. - her marginal cost of studying begins to increase.

her marginal benefit of studying equals her marginal cost of studying

Suppose the Chicago Cubs could rent out Wrigley Field (the field they play on) to local youth leagues for $11,000 per month. The $11,000 per month is the _____ cost of capital. explicit total direct implicit

implicit

Expenses associated with factors of production may be _____ costs. implicit, opportunity, or explicit opportunity implicit explicit

implicit, opportunity, or explicit

In central Florida, the demand for real estate has been increasing rapidly for years. Therefore, the _____ cost of capital is _____ in central Florida's orange groves. explicit; increasing implicit; decreasing implicit; increasing explicit; decreasing

implicit; increasing

Marginal benefit: - is the addition to total benefit due to undertaking one more unit of an activity. - must be increasing if total benefit is increasing. - is the subsidiary benefit from an activity; for example, the main benefit from weight training is an increase in muscle mass, and the subsidiary or marginal benefit might be a reduction in cholesterol. - normally increases as more of an activity is undertaken.

is the addition to total benefit due to undertaking one more unit of an activity

. A person who is risk averse: is willing to pay to avoid economic loss. enjoys taking risks. always makes rational decisions. always makes irrational decisions.

is willing to pay to avoid economic loss

Economic profit is: - always equal to accounting profit. - less than accounting profit if implicit costs are zero. - less than accounting profit if implicit costs exist. - greater than accounting profit if implicit costs exist.

less than accounting profit if implicit costs exist

George owns a dude ranch in Texas. He pays $32,000 per year in insurance, $408,000 in wages, and $23,000 in supplies. He forgoes $32,000 per year he could make as a police officer. His total revenue last year equaled $460,000. That means his economic _____ equaled _____. profit; $35,000 profit; $3,000 losses; $3,000 losses; $35,000

losses; $35,000

To maximize total profit from a particular activity, consumers and firms evaluate each activity at the: average. top. margin. end.

margin

In general, when marginal benefit is greater than marginal cost, the decision maker should do _____ of the activity. less that exact amount more none

more

When a person makes a choice that is close to but not exactly the one that leads to the best possible economic outcome, he or she is: being overconfident. making an irrational decision. usually ignoring opportunity costs. operating with bounded rationality.

operating with bounded rationality

Which of the following is a systematic mistake that leads to irrational decisions? maximizing profit rather than minimizing costs bounded rationality risk aversion overconfidence

overconfidence

The purpose of behavioral economics is to determine why: people maximize utility. people make decisions that appear to be irrational. markets usually behave in an efficient manner. firms maximize profit and minimize costs.

people make decisions that appear to be irrational

One of Jessuina's New Year's resolutions was to exercise more, so she bought an annual membership to the gym that allows unlimited visits. Unfortunately, the gym is so crowded and noisy that Jessuina leaves every day with a headache, without working out at all. According to marginal analysis, Jessuina should: a. continue using the gym for the year, since she has already paid for the membership. b. stop using the gym. c. join another gym only if she can get a refund on her current membership. d. join another gym only if a membership is cheaper at the new gym.

stop using the gym

Firms will continue to produce if: -the marginal benefits of producing an additional unit are less than the marginal costs of producing that unit. -the costs of producing the unit stay constant. -the marginal benefit of producing an additional unit is equal to the marginal cost of producing that unit. -the marginal benefits of producing an additional unit are greater than the marginal costs of producing that unit.

the marginal benefits of producing an additional unit are greater than the marginal costs of producing that unit