Place your answer on the answer sheet. There are 50 questions, each worth 2 points.
1) In 1985, Alice paid $20,000 for an option to purchase ten acres of land. By paying the $20,000, she bought the right to buy the land for $100,000 in 1992. When she acquired the option in 1985, the land was worth $120,000. In 1992, it is worth $110,000. Should Alice exercise the option and pay $100,000 for the land? A) Yes.
C) It depends on what the rate of inflation was between 1985 and 1992. D) It depends on what the rate of interest was.
2) Which of the following statements is true regarding the differences between economic and accounting costs? A) Accounting costs include all implicit and explicit costs. B) Economic costs include implied costs only.
C) Accountants consider only implicit costs when calculating costs. D) Accounting costs include only explicit costs.
3) In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of A) a fixed cost.
B) a variable cost.
C) an implicit cost.
D) an opportunity cost.
E) a sunk cost.
4) Which of the following statements correctly uses the concept of opportunity cost in decision making?
I. "Because my secretary's time has already been paid for, my cost of taking on an additional project is lower than it otherwise would be." II. "Since NASA is running under budget this year, the cost of another space shuttle launch is lower than it otherwise would be." A) I is true, and II is false.
B) I is false, and II is true.
C) I and II are both true.
D) I and II are both false.
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced.
5) Refer to Scenario 7.1. The total cost to produce 100 cookies is A) $0.10
6) Refer to Scenario 7.1. The total cost to produce 50 cookies is A) $20
7) Refer to Scenario 7.1. For 100 cookies, the average total cost is A) falling.
C) neither rising nor falling.
D) less than average fixed cost.
8) Use the following two statements to answer this question: I.
The average cost curve and the average variable cost curve reach their minima at the same level of output. II.
The average cost curve and the marginal cost curve reach their minima at the same level of output. A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.
9) Which of the following relationships is NOT valid?
A) Rising marginal cost implies that average total cost is also rising. B) When marginal cost is below average total cost, the latter is falling. C) When marginal cost is above average variable cost, AVC is rising. D) none of the above
10) An isocost line reveals the
A) costs of inputs needed to produce along an isoquant.
B) costs of inputs needed to produce along an expansion path. C) input combinations that can be purchased with a given outlay of funds. D) output combinations that can be produced with a given outlay of funds.
11) Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be A) 500.
D) 25/20 or 1.25.
12) The curve in the diagram is called
A) the income-consumption curve.
B) the long-run total cost curve.
C) the expansion path.
D) the price-consumption curve.
E) none of the above
13) At the optimum...
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