Exam 9: Decision Making by Individuals and Firms

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

(Table: The Cost and Benefit of Producing Gadgets) Look at the table The Cost and Benefit of Producing Gadgets.You own a small manufacturing company that produces gadgets.According to the table, how many gadgets should you produce? A.2 B.3 C.4 D.5

Which of the following is an example of bounded rationality? A.Ann proofreads her term paper six times. B.Mary feels that she has studied enough to make an A+ on her economics exam but studies another 2 hours just to be sure. C.Tim studies only an hour on the morning of his economics exam because he is satisfied just to make a passing grade. D.Terry does his economics homework twice to be sure that he has a thorough understanding of the topic.

(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the table Expected Exam Scores from Studying Economics and Accounting.If you studied for a total of 3 hours, your combined scores would be maximized by spending hours studying economics. A.1 B.2 C.3 D.4

Scenario: Accounting and Economic Profit 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 that paid $60,000 per year and started Wang's Wicker Furniture Store.He rented a showroom for $15,000 for the year, purchased capital equipment that depreciates $5,000 each 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. (Scenario: Accounting and Economic Profit) The economic profit of Wang's Wicker Furniture Store is: A.$67,000. B.$0. C.-$20,000. D.-$35,000.

Wear and tear on machinery from usage is: A.depreciation. B.rental costs. C.accounting profits. D.marginal costs.

(Table: Slices of Pizza) Look at the table Slices of Pizza.The table shows the total cost incurred and total benefit received from consuming additional slices of pizza.Complete the table and determine the optimal number of slices you should eat.

Any expense that is not recoverable is considered a sunk cost.

A "how much" decision is best made by comparing: A.the explicit costs of an action to the implicit costs of that action. B.the accounting profit of an action to the economic profit of that action. C.the marginal benefits of an action to the marginal costs of that action.

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? A.Pierre's parents are correct: if he leaves college, it is as though he has wasted three years of tuition. B.Pierre's parents are wrong: the marginal benefit to Pierre of another year of college is less than the marginal cost of college. C.Pierre's parents are wrong: the marginal benefit to Pierre of another year of college is greater than the marginal cost of college. D.It is impossible to tell who is correct.

(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the table Expected Exam Scores from Studying Economics and Accounting.If you studied for a total of 3 hours, your combined scores would be maximized by spending hours studying accounting. A.0 B.1 C.2 D.3

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

Figure: The Optimal Quantity (Figure: The Optimal Quantity) Look at the figure The Optimal Quantity.If the demand for lawn-mowing increased, 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

George owns a gun range 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 _. A.profit; $3,000 B.losses; $3,000 C.losses; $35,000 D.profit; $35,000

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

A person who is oversensitive to loss and is unwilling to recognize the loss and move on suffers from A.loss aversion. B.risk aversion. C.status quo bias. D.mental accounting.

According to the marginal decision rule, if the marginal benefit is: A.more than marginal cost, an activity should be increased. B.less than marginal cost, an activity should be increased. C.equal to marginal cost, an activity should be increased. D.more than marginal cost, net benefit is maximized.

According to the optimal output rule, if the marginal benefit is: A.more than the marginal cost, an activity should be reduced. B.less than the marginal cost, an activity should be reduced. C.equal to the marginal cost, an activity should be reduced. D.more than the marginal cost, net benefit is maximized.

(Table: Marginal Benefit of Sweatshirts) Look at the table Marginal Benefit of Sweatshirts.The marginal benefit of producing the third sweatshirt is: A.$31. B.$16. C.$15. D.$14.

A decision maker who is irrational: A.chooses an option that makes him or her worse off rather than choosing another available option. B.chooses the option that makes him or her better off rather than choosing another available option. C.allocates income in order to maximize his or her satisfaction from consuming goods and services. D.seeks to maximize business profit.