1. You purchase a pizza oven that is expected to last 10 years for $15,000. How do you account for the economic cost of the oven?
A. The cost is the price of the oven minus any revenue made selling pizzas made in the oven.
B. Calculate the value of renting the oven to someone else and use that as your cost.
C. Amortize the cost over the 10-year life of the oven, resulting in a cost of $1,500 per year.
D. Expense the oven, taking a write-off for the entire price in the first year.
2. If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it, the sunk cost is
A. $0.
B. $93,750.
C. $31,250.
D. $125,000.
3. Which of the following is NOT a form of outsourcing?
A. paying your son to mow the lawn.
B. hiring an accountant to do your taxes.
C. taking a taxi to the airport.
D. replacing the windshield wipers on your car.
4. Why do many people choose to not read the manuals included with their new computer?
A. They perceive that learning by doing is more enjoyable than learning by reading.
B. They perceive that learning by doing decreases costs faster than learning by reading.
C. They perceive that learning by reading is not sophisticated.
D. They perceive that learning by doing is better than learning by reading.
5. When you have diminishing marginal returns to labor
A. variable costs fall as more output is produced.
B. variable costs remain constant as more output is produced.
C. fixed costs rise as more output is produced because you have to buy more equipment to compensate.
D. variable costs rise as more output is produced.
6. A durable good is a product that
A. is usable over a long period of time.
B. holds up well under abuse.
C. has had the same design over a long period of time.
D. is purchased only once.
7. Isocost lines
A. represents the combinations of inputs that have the same total cost.
B. represents the combinations of inputs that have the same marginal cost.
C. represent supply and demand for inputs at a given cost.
D. are the inverse of the isoquant lines.
8. Why might a police officer not pull over someone speeding two miles over the speed limit?
A. The opportunity costs of stopping the driver are too low.
B. The explicit costs of stopping the driver over are too high.
C. The opportunity costs of stopping the driver are too high.
D. The explicit costs of stopping the driver are too low.
