Investing Company

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Ch. 1

1For a given question to be considered an economic question, it would need to involve: aexplicit prices.
bmaking a choice.
ca graph.
dlimited resources.
e*limited resources and making a choice.

You should have no problem answering this question. The textbook makes clear time and again in Ch. 1 that economics is all about making choices based on limited resources.

2Choosing to study at university so that the extra benefit (increased possibility of getting a job) equals the extra cost (forgone income while at university) is: aan irrational behaviour.
b*an application of the cost-benefit principle.
can application of the scarcity principle.
dthe relevant opportunity cost.
eless desirable than studying at an overseas university.

Also, I’d like you to think about the difference between Marginal & Average Cost and Marginal & Average Benefit (questions 5 & 6 test you on this).

3The opportunity cost of an activity is the value of:
aan alternative forgone.
b*the next-best alternative forgone.
cthe least-best alternative forgone.
dthe difference between the chosen activity and the next-best alternative forgone. ethe alternative one would have preferred to choose.

It may well be the case that we have many alternatives to an activity, but as we have to make choices, we have to choose one of the alternatives if we were to forego our original activity, so b is the most accurate answer.

4Ontel engineers proposed developing a 2-gigahertz microprocessor in early 1999 at a cost of $20 million for a working prototype. By mid-2000, the $20 million had been spent with no prototype. The engineers request an additional $10 million to finish the project. For convenience, assume the marginal cost of producing the chip once it is developed is zero. A senior executive at Ontel argues that the engineers should only be granted the additional $10 million if Ontel can...
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