Chapter 9 HW

You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business?

bread, meat, and vegetables used to produce the items on your menu

the job offer you did not accept at a local catering service

your monthly utility bill

wages paid to part-time employees

the job offer you did not accept at a local catering service
Suppose Eastland College does not have a summer program and could rent out the campus to various summer sports camps for $100,000. The potential revenue of the summer camps represents:
an implicit cost of capital.
Which of the following is a “how much” decision?

Andy is trying to decide whether to take a prep course for the Law School Admissions Test.

Tim is trying to decide the amount of money to save each month to buy a new car next year.

Mary is trying to decide whether to go to work or go to college after she graduates from high school next month.

Andrea is trying to decide whether to go to graduate school in economics or go to law school.

Tim is trying to decide the amount of money to save each month to buy a new car next year.
Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang’s Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000. The economic profit of Wang’s Wicker Furniture Store is:
-$35,000.
If the marginal benefit received from consuming a good is equal to the marginal cost of production:
society’s well-being cannot be improved by changing production.
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You plan to attend a movie on Saturday night. You buy a ticket for $7 and then lose it. According to marginal analysis, you should:
buy another ticket and attend the movie.
After three years at an expensive college, Pierre realizes that he doesn’t want to finish school but really wants to be a chef. When Pierre suggests that he leave college for culinary school, his parents insist that he stay for one more year to get his degree. Which of the following is TRUE?

Pierre’s parents are correct: if he leaves college, it is as though he has wasted three years of tuition.

Pierre’s parents are wrong: the marginal benefit to Pierre of another year of college is less than the marginal cost of college.

It is impossible to tell who is correct.

Pierre’s parents are wrong: the marginal benefit to Pierre of another year of college is greater than the marginal cost of college.

Pierre’s parents are wrong: the marginal benefit to Pierre of another year of college is less than the marginal cost of college
People are willing to buy insurance because of:
risk aversion.
Cindy just graduated from college and started working at a large accounting firm. Although the firm will match her contributions to a retirement account, Cindy wants to wait several years before participating, since there are so many things she needs to buy right now. What type of behavior does this represent?
unrealistic expectations about the future
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.

Betty’s implicit and explicit costs are equal to:

$204,500
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.

Betty is trying to decide at what point she should stop selling cookies, and she knows she cannot change the price of a cookie. She should stop selling cookies if:

her implicit costs are greater than her accounting profits.
As George ate pizza during one recent outing, he found that he enjoyed each additional slice less and less. This implies that his marginal benefit was:
decreasing.
If marginal costs of production are greater than marginal benefits of production:
too much of the good is being produced.
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