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Sample ECF1100 Midterm 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 costbenefit 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 dogsitting 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 dogsitting, $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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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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 Three '11
 Shen
 Microeconomics, Opportunity Cost

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