SAMPLE MID SEM TEST

SAMPLE MID SEM TEST - Sample ECF1100 Mid-term exam answers...

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Sample ECF1100 Mid-term exam answers 1 A cost that we cannot avoid whether or not an action is taken is called a(n): a opportunity cost. b average cost. c sunk cost. d marginal cost. e total cost of the action. Answer: C 2 Matt delivers local newspapers eight hours a week. For every hour of newspaper delivery he receives $10 dollars. Recently he got an offer of pizza delivery which would pay $4 per pizza. Given his other weekly commitments, he only has eight hours a week. Using the cost-benefit principle, how many pizzas should he deliver per hour to take up the new job to get the same benefit as the delivery task? a Matt shouldn’t deliver pizza at all for its health concern. b Matt should deliver at least 2.5 pizzas per hour. c Matt should deliver at least 10 pizzas per hour. d Matt should deliver at least 20 pizzas per hour. e Matt should flip a coin to decide. Answer: B (One hour he spends on pizza delivery should earn what he could make by delivering newspapers per hour. Sp it is 10/4 = 2.5) 3 Lauren is thinking about going to the cinema tonight to see the new Harry Potter film. A ticket costs $15 and she will have to cancel her dog-sitting job that pays $30. Her total cost of seeing the movie is: a $15. b $30. c $45. d $45 minus the benefit of seeing the movie. e indeterminate. Answer: C (Her total cost is ticket costs, $15, plus what she could have earned from dog-sitting, $30.) 4 Amy has bought some land for $100,000 and is deciding to build a house this year. If she hires a building supervisor, it will cost her $20,000. But if she does the supervising herself, then she will have to give up half of her work time, for which she is paid an annual salary of $40,000. Based on this information, which of the following is true? a She will hire a building supervisor. b She will supervise the building herself.
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c Amy’s cost of building the house will be the same even if she supervises the building herself. d Amy’s opportunity cost of hiring a supervisor is the same as not hiring a supervisor. e Any of the given alternatives. Answer: E (She is indifferent between doing it on her own or hiring a supervisor.) 5 Alpha Music Company paid $100,000 to Beta Bestrem for recording a single album. Now Alpha is thinking of hiring a distributor for $25,000 to sell CDs of that album to various music shops. The additional cost to Alpha Music Company is $3 to produce and deliver each CD to the distributor. If Alpha can sell a CD for $5, how many CDs should they sell to cover the cost of hiring the distributor? a 56,250. b 50,000. c 12,500. d 25,000. e 3,000. Answer: C (The payment $100,000 to Beta Bestrem is a sunk cost, so it shouldn’t enter the opportunity cost calculation. The cost of producing and distributing per CD is $3 so the benefit from each CD at price $5 is $2. To cover the cost $25,000 of hiring a distributor, Alpha has to sell 25000/2 = 12,500 CDs.) 6 To say that a country possesses an absolute advantage in everything means that: a it is endowed with more natural resources than another country.
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SAMPLE MID SEM TEST - Sample ECF1100 Mid-term exam answers...

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