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MBAC6010 - Midterm 1 - Practice Questions

# MBAC6010 - Midterm 1 - Practice Questions - MBAC6010...

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MBAC6010: Managerial Economics Midterm 1 - Practice Questions 1. A family is currently paying \$40 a month for basic phone service for two phone lines. A representative from another phone carrier calls the family to offer a service that will include basic phone through a cable connection that includes two phone numbers, call waiting, voice mail, and caller-ID for \$52 a month. a. What is the relevant cost for deciding whether to switch phone carriers? b. How should the family make this decision so that they are as well off as possible? c. What additional information do they need to make the decision? d. In the previous month, the family paid \$80 to have a second phone line installed. This second phone line will no longer be necessary with the new service. How does this cost enter into their decision? 2. Point out the faulty reasoning in each of the following statements. a. You win a free, nontransferable ticket to a Sheryl Crow concert. Since the ticket is free, you decide to go because “it’s no skin off my back.” b. You paid nonrefundable tuition of \$3,000 to take a 15-week course. Therefore, the opportunity cost of attending class each week is \$3,000 divided by 15, or \$200. c. Since you like to avoid costs and every decision involves an opportunity cost, you don’t make decisions. d. You have purchased 5 premium apples for \$1.99 a pound. When you get home from the grocery store, however, you realize that the apples are not crisp as you’d expected, but mushy. Since you paid top dollar for these apples, you decide you have to eat them. 3. Classify the following Wall Street Journal articles as macroeconomic or microeconomic issues based on their titles.

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