Exam 9: Decision Making by Individuals and Firms

At whatever quantity MB = MC, the decision maker should do of the activity. A.less B.that amount C.more D.none

If the marginal cost curve is upward sloping, as output increases, marginal costs will: A.increase. B.decrease. C.stay constant. D.become downward sloping.

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 irrational behavior does this represent? A.unrealistic expectations about the future B.loss aversion C.mental accounting D.risk aversion

Profit computed using explicit costs as the only measure of costs is: A.explicit profit. B.accounting profit. C.implicit profit. D.economic profit.

Money that must be paid for the use of factors of production such as labor and capital is an: A.explicit cost. B.accounting profit. C.implicit cost. D.economic profit.

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

Learning effects often result in marginal costs. A.decreasing B.increasing C.constant D.random

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

Figure: The Optimal Quantity (Figure: The Optimal Quantity) Look at the figure The Optimal Quantity.If the cost of producing lawn-mowing decreased, the ________ curve in the figure would shift to the and the total net gain would _. A.marginal benefit; right; increase B.marginal cost; right; increase C.marginal benefit; left; decrease D.marginal cost; left; decrease

Suppose Joan buys a new refrigerator to replace her old one that suddenly quit working.If Joan buys the model on closeout sale and doesn't take time to do research on repair records and energy efficiency of various other models, she is using: A.status quo decision making. B.bounded rationality. C.marginal analysis D.risk aversion.

Scenario: Betty's Cookie Shop Betty runs a cookie shop where she sells cookies for $1 each.In order to run the business, she employs five people, each of whom worked a total of 500 hours last year; she paid them a wage of $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 if she would come to work for them.She also knows she could sell her cookie shop for $150,000.The bank in town currently pays an annual interest rate of 3% on all funds deposited with it.Assume there is no capital depreciation at this point. (Scenario: Betty's Cookie Shop) Given the information provided, if Betty is trying to decide at what point she should stop selling cookies and she knows she cannot change the price of a cookie, then she should stop selling cookies if A.her economic profit is positive. B.her explicit and implicit costs are less than her revenues. C.her implicit costs are greater than her economic profits. D.her economic profit is equal to her accounting profit.

Because resources are scarce, the true cost of anything is its opportunity cost.

If marginal costs remain constant, the marginal cost curve is: A.vertical. B.horizontal. C.upward sloping from the origin. D.downward sloping.

(Table: Tutoring) Look at the table Tutoring.Sigmund faces: A.increasing marginal benefit. B.constant marginal benefit. C.increasing marginal cost. D.constant marginal cost.

The tendency to avoid making a decision is: A.status quo bias. B.bounded rationality C.loss aversion. D.mental accounting.

One of Jessuina's New Year's resolutions was to exercise more, so she bought an annual membership to the local gym that allows unlimited visits with no additional cost per visit.Unfortunately, the gym is so crowded and noisy that Jessuina leaves every day with a headache.According to marginal analysis, Jessuina should: A.continue using the gym for the year since she has already paid for the membership. B.join another gym only if a membership is cheaper at the new gym. C.join another gym only if she can get a refund on her current membership. D.stop using the gym.

If a decision maker chooses an option that leaves him or her worse off than choosing another available option, he or she is: A.using bounded rationality. B.basing the decision on risk aversion. C.making an irrational decision. D.making a rational decision.

Figure: The Optimal Quantity (Figure: The Optimal Quantity) Look at the figure The Optimal Quantity.If the demand for lawn-mowing decreased, the ________ curve in the figure would shift to the and the optimal quantity would be five lawns mowed. A.marginal benefit; right; more than B.marginal cost; right; fewer than C.marginal benefit; left; fewer than D.marginal cost; left; more than

Economic profits can be negative even if accounting profits are positive.

Whenever marginal benefit is greater than marginal cost, the decision maker should do ________ of the activity. A.Less B.that exact amount C.more D.none