Exam #1, Fall 2010
Bubble your answers on your scantron sheet using your #2 pencil.
Each question is worth 2 points.
Hence, your maximum score can be
102 points (based on 100 points).
Choose the one alternative that best completes the statement or answers the question
1) By definition, economics is the study of
A) the choices people make to attain their goals, given their scarce resources.
B) how to make money in a market economy.
C) how to make money in the stock market.
D) supply and demand.
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A
manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000
and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are
producing the optimal number of cell phones."
Refer to Scenario 1
Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher
or lower, and if so by how much?
A) Its profit would have been $700 higher.
B) Its profit would have been $6,000 lower.
C) Its profit would have been $6,700 higher.
D) Its profit would have been $700 lower.
3) Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the
repairs are complete.
Mike discovers that in addition to the $500 he has already spent, he needs to make an
additional repair, which will cost another $400, in order to make the boat worth $800 to potential buyers.
can sell the boat as it is now for $300.
A) He should sell the boat as it is now for $300.
B) He should keep the boat since it would not be rational to spend $900 on repairs and then sell the boat for
C) He should complete the repairs and sell the boat for $800.
D) It does not matter which action he takes; the outcome is the same either way.
4) Arlene quits her $125,000
year job to take care of her ailing parents. What is the opportunity cost of her
A) the value she attributes to the satisfaction she receives from taking care of her parents
B) It depends on the "going rate" for home
C) zero, since she will no longer be earning a salary
D) at least $125,000
5) The production possibilities frontier shows
A) the maximum attainable combinations of two products that may be produced in a particular time period
with available resources.
B) what people want firms to produce in a particular time period.
C) what an equitable distribution of products among citizens would be.
D) the various products that can be produced now and in the future.