Exam 9: Decision Making by Individuals and Firms

It is not possible to earn an economic profit without also earning an accounting profit.

(Table: Marginal Analysis of Sweatshirt Production I) Given the information in the table, the net benefit at the optimal quantity of sweatshirts is: A.$8. B.$9. C.$45. D.$70.

The amount by which an additional unit of an activity increases total benefit is: A.net benefit. B.marginal benefit. C.marginal cost. D.utility.

(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor.Assume that the marginal cost is constant in intervals of production.The marginal cost for pizza production at TC's Pizza Parlor: A.remains constant. B.increases, then decreases. C.increases. D.decreases.

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

If a person engages in mental accounting, he or she: A.is unwilling to recognize a loss and move on. B.values some dollars more than others. C.tends to avoid making decisions. D.tries to balance his or her bank account mentally, without writing anything down.

As George eats pizza during one recent outing, he finds that he enjoys each additional slice less and less.This implies that his marginal benefit is: A.decreasing. B.increasing. C.constant. D.vertical.

Figure: The Marginal Analysis of Cell Phones (Figure: The Marginal Analysis of Cell Phones) Look at the figure The Marginal Analysis of Cell Phones.You are considering purchasing cell phones for your department.The graph represents your marginal benefit and marginal cost curves.How many cell phones will you consume? A.1 B.2 C.3 D.4

Until recently Rosemarie worked as an accountant, earning $30,000 annually.Then she inherited a piece of commercial real estate that had been renting for $12,000 annually.Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited.At the end of the first year, her books showed total revenues of $260,000 and total costs of $230,000 for food, utilities, cooks, and other supplies.Her economic profit at the end of one year is: A.$230,000. B.$30,000. C.$0. D.-$12,000.

Most economic models: A.assume that people behave irrationally. B.assume that people behave rationally. C.assume that people are reluctant to learn from their mistakes. D.are useless because they use too many simplifying assumptions.

Marginal analysis should be used in "either-or" decisions.

Accounting profit differs from economic profit because: A.of differences in the manner in which revenue is calculated. B.economic costs include depreciation, while accounting costs do not. C.accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs, while economic costs include only explicit costs. D.economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

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

Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years.However, Lucy refuses to sell the stock, thinking that if she waits long enough, she will recover her investment.What type of irrational behavior does this represent? A.mental accounting B.bounded rationality C.risk aversion D.loss aversion

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

(Table: Expected Exam Scores from Studying Economics and Accounting) Look at the table Expected Exam Scores from Studying Economics and Accounting.With 3 total hours of study time, the opportunity (or marginal) cost in terms of your accounting score of spending the first hour studying economics is points.

The amount by which an additional unit of an activity increases total cost is: A.net benefit.marginal B.benefit.negative C.benefit. D.marginal cost.

Ian is such a big Braves fan that his benefit of seeing a Braves' game is $200.He pays $100 for a ticket to see one of their playoff games.Unfortunately, he left the ticket in his jeans when he laundered them and the ticket is destroyed.According to marginal analysis, Ian should: A.not go to the game. B.buy another ticket for $100 and attend the game. C.buy another ticket and attend the game only if he can buy the ticket for less than $100. D.watch the game on TV.

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

Part of the explicit cost of owning a restaurant is depreciation on the kitchen equipment.