ECN 104 Chapter Notes - Chapter 1: Scientific Method, Opportunity Cost, Marginal Cost

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24 Oct 2016

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Economic perspective: a viewpoint that envisions individuals and institutions making ration decisions by comparing marginal benefits and costs. Limited goods and resources limits options to make choices. Opportunity cost: other products that must be forgone/ sacrificed to produce units. Individual: look to increase their utility by purchasing opportunityt. Utility: satisfaction of person by consuming good or service means people make decisions with outcome in mind. Profit: to return to the resource entrepreneurial ability, total revenue minus expenses. Rational self interest: increase personal satisfaction, may be derived. Marginal analysis: comparing benefits and costs, usually for decision making. Marginal benefit: additional benefit from when consuming one more unit. Marginal cost: extra cost of producing one more unit of output. Scientific method: systematic pursuit of knowledge through formulating a problem, collect data, and formulating and testing hypothesis to obtain theories, principles and laws. Economic law/ economic principal: economic principle that has been tested overtime and retested.

Related Questions

1. When economists speak of "marginal," they mean
a. Opportunity.
b. Scarcity.
c. Incremental.
d. Unimportant.

2. Managers undertake an investment only if
a. Marginal benefits of the investment are greater than zero.
b. Marginal costs of the investment are greater than marginal benefits of the investment.
c. Marginal benefits are greater than marginal costs.
d. Investment decisions do not depend on marginal analysis.

3. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly, and they cost $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs break down?
a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250.
b. Total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250.
c. Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19,250.
d. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250.

4. Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units. Which of the following is true if marginal cost is constant?
a. FC = $100
b. FC = $200
c. FC = $300
d. FC = $400

5. A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare
a. The total benefits gained from the two factories to the total costs of running the two factories.
b. The incremental benefit expected from the second factory to the total costs of running the two factories.
c. The incremental benefit expected from the second factory to the cost of the second factory.
d. The total benefits gained from the two factories to the incremental costs of running the two factories.

6. A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity by 100 units a week. The cost of hiring him or her is $1,500 per week. If the price of each unit is $12,
a. The MR of hiring the worker is $1,500.
b. The MC of hiring the worker is $1,200.
c. The firm should not hire the worker since MB < MC.
d. All the above

7. A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire 12 workers, a wage rate of $7 per hour is sufficient.
What is the marginal cost of the 13th worker?
a. $117
b. $9
c. $33
d. $84

8. If a firm's average cost is rising, then
a. Marginal cost is less than average cost.
b. Marginal cost is rising.
c. Marginal cost is greater than average cost.
d. The firm is making an economic profit.

9. After the first week of his MBA Managerial Economics class, one of your pharmaceutical sales representatives accuses you of committing the sunk-cost fallacy by refusing to allow him to reduce price to make what he considers to be a really tough sale. Which of the following suggests the sales representative may be right?
a. Most of the costs of drug development are sunk, not fixed.
b. Sales representatives are paid a sales commission on revenue, so they don't care about the costs of drug development.
c. Sales representatives don't worry that a low price today may make it more difficult for the company's other sales representatives to charge higher prices to their customers, tomorrow.
d. Sales representatives think only about one thing, sales.

10. A company is producing 15,000 units. At this output level, marginal revenue is $22, and the marginal cost is $18. The firm sells each unit for $48 and average total cost is $40.
What can we conclude from this information?
a. The company is making a loss.
b. The company needs to cut production.
c. The company needs to increase production.
d. Not enough information is provided.

Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the

	a.	forgone working or partying, depending on which was your next best choice.
	b.	forgone work.
	c.	forgone working and partying.
	d.	test because you are taking it.

1 points

QUESTION 2

A trend is

	a.	a measure of closeness on a scatter diagram.
	b.	a general tendency for a variable to rise or fall.
	c.	the maximum value of a variable.
	d.	the difference between the maximum value of a variable and the minimum value of the variable.

1 points

QUESTION 3

A time-series graph measures

	a.	time on the y-axis and the variable or variables in which we are interested on the x-axis.
	b.	time on the x-axis and the variable or variables in which we are interested on the y-axis.
	c.	the value of one variable against the value of another variable.
	d.	the value of an economic variable for different groups in a population at a point in time.

1 points

QUESTION 4

Canada has nationalized health care, so that everyone, regardless of their ability to pay, has some access to health care. Based on this observation, Canada has decided that "everyone, regardless of their ability to pay" is the answer to what microeconomic question?

	a.	Why will we offer health care?
	b.	How will health care be produced?
	c.	For whom will health care be produced?
	d.	What type of health care will be produced and in what quantity?

1 points

QUESTION 5

As a shoe factory adds more workers, shoe production grows, reaches a maximum, and then shrinks. In a diagram that has the number of workers on the horizontal axis and the number of shoes on the vertical axis, the relationship between the number of workers and the number of shoes starts as ________ and then, after the maximum point, is ________.

	a.	positive; negative
	b.	negative; positive
	c.	linear; negative
	d.	positive; linear

1 points

QUESTION 6

Microeconomics includes the study of the

	a.	choices made by individuals and businesses.
	b.	recessions and inflation in the global economy.
	c.	aggregate effects on the national economy.
	d.	reasons why the government changes interest rates.

1 points

QUESTION 7

When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers the ________ question.

	a.	when
	b.	for whom
	c.	how
	d.	what

1 points

QUESTION 8

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that

	a.	the opportunity cost of working is negative.
	b.	the marginal cost of each additional work hour is not important to most workers.
	c.	workers are irrational.
	d.	workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.

1 points

QUESTION 9

A choice made by comparing all relevant alternatives systematically and incrementally is

	a.	an opportunity cost.
	b.	a benefit.
	c.	a sunk cost.
	d.	a choice on the margin.

1 points

QUESTION 10

A normative statement

i. can be tested as to whether it is true or false.

ii. is considered negative.

iii. depends on a person's values.

	a.	i, ii, and iii
	b.	iii only
	c.	i and iii
	d.	ii and iii

1 points

QUESTION 11

Normative statements

i. describe how the world is.

ii. describe how the world ought to be.

iii. depend on people's values and cannot be tested.

	a.	iii only.
	b.	i only.
	c.	ii and iii.
	d.	ii only.

1 points

QUESTION 12

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.

	a.	positive benefits and normative costs
	b.	normative benefits and positive costs
	c.	marginal benefit and marginal cost
	d.	opportunity cost and the sunk cost

1 points

QUESTION 13

If x increases whenever y decreases, then x and y are

	a.	positively related.
	b.	negatively related.
	c.	not related.
	d.	related but whether positively or negatively related depends on whether the x variable or the y variable is plotted on the vertical axis.

1 points

QUESTION 14

Rational choice

	a.	is what you must give up get what you want.
	b.	is made by comparing different incentives.
	c.	making the choice.
	d.	provides the answer to only the "how" question.

1 points

QUESTION 15

Scarcity results from the fact that

	a.	choices made in self-interest rare not always in the social interest.
	b.	not all goals are desirable.
	c.	people's wants exceed the resources available to satisfy them
	d.	we cannot answer the major economic questions.

1 points

QUESTION 16

When Delta decides to quit flying to Lithuania, it directly answers the ________ question.

	a.	what
	b.	why
	c.	for whom
	d.	how

1 points

QUESTION 17

A normative statement

	a.	says what is currently believed about the way the world operates.
	b.	depends on someone's values.
	c.	cannot use the word "should."
	d.	must be tested to determine if it is correct.

1 points

QUESTION 18

Which of the following statements best describes the study of economics? Economics studies how

	a.	to organize production so that scarcity does not occur.
	b.	to create incentives so that scarcity does not exist.
	c.	firms make profits.
	d.	we make choices in the face of scarcity.

1 points

QUESTION 19

Which of the following best defines economics?

	a.	Economics teaches how to limit our wants.
	b.	Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level.
	c.	Economics helps you earn as much money as possible.
	d.	Economics studies how to choose the best alternative when coping with scarcity.

1 points

QUESTION 20

In economics, cost is ________, and benefit is ________.

	a.	the amount of money that you pay for something; the amount of money that someone else is willing to pay you
	b.	what you are willing to pay on the margin; what the government pays you when you are unemployed or retired
	c.	what you must give up to get something; what you are willing to give up to get it
	d.	the amount of money that you pay on the margin; the amount of money that you receive on the margin

1 points

QUESTION 21

If Jessie studies economics for two hours instead of going to the movies with her friends, then

	a.	the opportunity cost of studying is the missed movie.
	b.	Jessie is ignoring a sunk cost
	c.	Jessie is not responding to any incentives.
	d.	Jesse definitely is making a rational choice.

1 points

QUESTION 22

Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.

	a.	The $80 price of skiing is a sunk cost and so did not affect Adam's decision.
	b.	He loses a total of $120 per day, so his decision is irrational.
	c.	His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
	d.	Adam's lost $40 per day in wages is a sunk cost and so did not affect his decision.

1 points

QUESTION 23

If a curve falls and then rises, it

	a.	has a maximum.
	b.	has a linear relationship.
	c.	has a minimum.
	d.	has a constant slope relationship.

1 points

QUESTION 24

In 2003, Michael Jordan decided to retire from professional basketball. Which of the following was an opportunity cost of his decision?

	a.	the avoidance of pain and injury from playing one more year
	b.	the time he could spend with his family while retired
	c.	the lost salary from playing one more year
	d.	the value of new employment opportunities that would await him

1 points

QUESTION 25

Which of the following statements is a normative statement?

	a.	Military spending as a percent of government spending decreased by 5 percent in the 1990s.
	b.	Every American household should have health care insurance coverage.
	c.	Welfare reform has decreased the amount the government spends on welfare.
	d.	The price of computers fell last year.

greencat417

4. Decisions made âat the marginâ entail a choice based upon_____________ of a decision.

a. the additional benefits
b. the total costs
c. comparing the total benefits and costs
d. comparing the additional benefits and costs
5. 100 units of Good X are available but individuals desire 500units. ______________ will determine who attains Good X, and whodoes not.

a. A rationing device
b. Opportunity Cost
c. Utility
d. Natural Selection

6. Individuals will continue consuming so long as:

a. The price of a good continues to decrease
b. The marginal costs of consuming are outweighed by the marginalbenefits
c. The individual seeks additional utility
d. The individual is willing and able

8. If the cross-price elasticity of two goods is positive, thenthose two goods are
a. substitutes.
b. complements.
c. normal goods.
d. inferior goods.

11. The basic reason most supply curves are upward sloping isthat:

a. More firms are in the market, therefore more goods areproduced.
b. Because more quantity is being demanded, suppliers raise theprice.
c. Producers face higher opportunity costs when producing higherlevels of quantity, so they must receive a higher price.
d. Producers seek to maximize total revenue.

18. When the price of bubble gum is $0.60, the quantity demanded is500 packs per day. When the price falls to $0.50, the quantitydemanded increases to 900. The demand for gum would beconsidered:

a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.

20. Inefficient Production implies which of the following:

a. it is impossible to produce more of one good without producingless of another
b. there are too few resources
c. there are too many resources
d. it is possible to produce more of one good without producingless of another

21. Workers at a bicycle assembly plant currently make minimumwage. If the federal government increases the minimum wage by $1.00an hour it is likely that the

a. demand for bicycle assembly workers will increase.
b. supply of bicycles will shift to the right.
c. supply of bicycles will shift to the left.
d. firm must increase output to maintain profit levels.

24. Suppose at a price of $5 and at a price of $9, John purchases40 units of good X. Given this information, we know that Johnâsdemand for good X is
a. perfectly elastic at all prices.
b. inelastic at all prices.
c. unit elastic between the prices of $5 and $9.
d. perfectly elastic between the prices of $5 and $9.
e. perfectly inelastic between the prices of $5 and $9.

25. If the price of good A decreases by 10 percent and the quantitydemanded of good B decreases by 10 percent, this is evidence that Aand B are
a. substitute goods.
b. complement goods.
c. inferior goods.
d. normal goods.
e. not related.

6. For an individual to achieve consumer equilibrium when consumingtwo goods, A and B, the individual must satisfy the followingcondition:

a. TUA = TUB
b. TUA/PA = TUB/PB
c. MUA = MUB
d. MUA/PA = MUB/PB
e. MUA/PB = MUB/PA

7. Which of the following statements is correct regarding a firm'sdecision making?
a. The decision to shut down and the decision to exit are bothshort-run decisions.
b. The decision to shut down and the decision to exit are bothlong-run decisions.
c. The decision to shut down is a short-run decision, whereas thedecision to exit is a long-run decision.
d. The decision to exit is a short-run decision, whereas thedecision to shut down is a long-run decision.

Table 1

Output Total Cost
0 $20
1 $30
2 $41
3 $51
4 $65
5 $75
6 $84
7 $105

13. Refer to Table 1. The marginal cost of producing the fifth unitof output is
a. $55.00
b. $15.00
c. $9.00
d. $10.00

21. A perfectly competitive firm can produce its current level ofoutput at an average total cost of $10 and a marginal cost of $8.If the market price of the product is currently $8, what should thefirm do?

a. The firm should definitely shut down since average total costexceeds price.
b. The firm should shut down if average variable cost is $8 orgreater, but the firm should continue to produce the current levelof output if average variable cost is less than $8.
c. The firm should increase production in order to increaseprofit.
d. The firm should continue to produce, but it should decreaseproduction in order to increase profit.
24. In the long run all costs are variable. Thus, aprofit-maximizing firm may exit:

a. When Price < Average Total Cost
b. When Price > Average Total Cost
c. When Average Revenue > Average Fixed Cost
d. When Average Revenue > Marginal Cost

25. Marginal cost tells us the
a. value of all resources used in a production process.
b. marginal increment to profitability when price isconstant.
c. amount by which total cost rises when output is increased by oneunit.
d. amount by which output rises when labor is increased by oneunit.

26. For a perfectly competitive firm:
a. marginal revenue is equal to price.
b. price is equal to marginal cost at the output level thatmaximizes profit.
c. selling an additional unit of the good it produces increasestotal revenue by the price of the good.
d. a and b
e. a, b, and c

ECN 104 Chapter Notes - Chapter 1: Scientific Method, Opportunity Cost, Marginal Cost

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