Question 1

Mariya runs a small cafe where she makes sandwiches and sells coffee. There isn't room for a second person so Mariya works alone. Mariya buys a new coffee machine that allows her to brew her coffee more cheaply. Mariya should

Accepted Answer

With the new coffee machine, Mariya can brew coffee more cheaply, which may increase her profit margin on coffee. Therefore, she should focus on selling more coffee, potentially reducing the time spent on making sandwiches.

Question 2

As the price of a product or service falls,

Accepted Answer

As the price of a product or service falls, producers are less willing to supply the same amount, leading to a decrease in the quantity supplied, not the overall supply curve. Supply refers to the overall relationship between price and the quantity of goods supplied, while quantity supplied refers to the specific amount of goods that sellers are willing to supply at a specific price.

Question 3

Komal paid $800 for a night school class. She can still get a 75% refund of $600. The opportunity cost of dropping out of school includes the $200 in tuition that she can't get back.

Accepted Answer

The opportunity cost should include the full $800 that she paid, not just the portion that she can't get back. So the opportunity cost of dropping out of school would be $800, not $200.

Question 4

A sunk cost can be recovered if you make a smart choice.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. Therefore, it cannot be recovered even if a smart choice is made.

Question 5

Kiran paid Global TV $2,000 to run commercials for her business. Even though the commercials are over, her customers still mention them. While the commercials continue to generate new business, the $2,000 is a sunk cost.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered regardless of future events. In this case, the $2,000 paid for the commercials is a sunk cost because it cannot be recovered, even though the commercials continue to generate new business.

Question 6

You are sick of your "Save the Whales" tattoo, and are willing to pay to have it painfully removed. The cost of the original tattoo is a sunk cost.

Accepted Answer

A sunk cost is a cost that has already been paid and cannot be recovered. The cost of the original tattoo falls under this definition, hence it is a sunk cost.

Question 7

Matthew bought a 1994 Honda Civic for $2,000. A friend offered him $500 for the car last week. Matthew has been offered a job in France. Driving an old Honda from Toronto to France is not possible. His opportunity costs of the job include the $1,500 he would lose on the Honda.

Accepted Answer

Opportunity cost refers to the value of the next best alternative foregone as a result of making a decision. In this case, the opportunity cost of taking the job in France would include factors like the cost of moving, potential loss of other job opportunities, or personal sacrifices, not the loss on the sale of the Honda, which is a sunk cost.

Question 8

Equipment originally bought for $4,000 which now has no resale value is a sunk cost.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of any future actions that may be taken. In this case, the equipment has no resale value, meaning that the initial cost of $4,000 cannot be recovered. Therefore, it is a sunk cost.

Question 9

When Francis decides about moving to take a job in Phoenix, his three-year contract with Rogers for cable TV in Toronto is not a relevant factor.

Accepted Answer

Francis's decision to move to Phoenix for a job is not related to his contract with Rogers for cable TV in Toronto.

Question 10

Lance runs a bicycle repair shop. His assistant demanded and received a wage raise. In response, Lance's supply of repair services decreases because

Accepted Answer

When Lance's assistant demanded and received a wage raise, the cost of inputs, i.e., the wages paid to the assistant, has increased. This increase in cost causes the supply of repair services to decrease as the marginal cost of producing each unit of repair service has increased. Therefore, the correct choice is A, i.e., the price of an input rises.

Question 11

Costco requires all customers to buy a one-time membership before they can shop. The membership fee is a sunk cost.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. In this case, the membership fee is paid upfront and cannot be refunded, making it a sunk cost.

Question 12

You miss the flight to Hawaii, and the airline only gives you a credit for a future flight. The cost of your original ticket is a sunk cost.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. In this scenario, the cost of the original ticket is a sunk cost because it cannot be refunded or recovered, therefore it should not factor into the decision of whether to use the airline credit in the future.

Question 13

Before Andrew took a prestigious accounting job, he estimated that he would have to spend $10,000 on new suits. For a job with a less prestigious company he would only have to spend $2,000 on new suits. When making a smart choice between jobs, the $8,000 difference in clothing costs is irrelevant because it is a sunk cost.

Accepted Answer

The $8,000 difference in clothing costs is not a sunk cost because it represents a future expense that Andrew would incur only if he chooses the more prestigious job, thus it should be considered in his decision-making process. Sunk costs refer to expenses that have already been incurred and cannot be recovered, which is not the case here.

Question 14

All inputs in a business are equally productive at all activities. As the business increases its output, marginal opportunity cost

Accepted Answer

The assumption in the statement that all inputs are equally productive at all activities implies constant marginal opportunity cost. Therefore, the correct choice is B, which states that the marginal opportunity cost is constant.

Question 15

All inputs in a business are not equally productive at all activities. As the business increases its output, marginal opportunity cost

Accepted Answer

As the business increases its output, it will need to use progressively less productive (marginal) inputs. This means the opportunity cost of using those inputs increases, resulting in the increase of marginal opportunity cost. Therefore, the correct choice is C – increases.

Question 16

You miss the flight to Hawaii, and the airline only gives you a credit for a future flight. The cost of your original ticket is not a sunk cost because you can use the credit in the future.

Accepted Answer

The cost of the original ticket becomes a sunk cost once the flight is missed because it represents a past expenditure that cannot be recovered, regardless of the credit for future travel.

Question 17

Buying a photo ID bus pass creates a sunk cost.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered or changed. Buying a photo ID bus pass is a sunk cost because once the purchase is made, the money cannot be refunded and the pass cannot be returned.

Question 18

As the price of a product or service rises,

Accepted Answer

The law of supply states that when the price of a product or service increases, the quantity supplied also increases, ceteris paribus. This means that suppliers are willing to produce and offer more of the product or service at a higher price, which indicates an upward-sloping supply curve. Therefore, as the price of a product or service rises, the quantity supplied increases, not the quantity demanded or the level of demand.

Question 19

Costco requires all customers to buy a one-time membership before they can shop. The membership fee is not a sunk cost because the savings on Costco purchases are more than the membership fee.

Accepted Answer

The membership fee is considered a sunk cost because it is a cost that has already been incurred and cannot be recovered, regardless of future savings or benefits from shopping at Costco.

Question 20

Haley spent 100 hours of her time and bought $500 in supplies to paint a picture. These costs are sunk costs.

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. In Haley's case, the 100 hours of her time and $500 spent on supplies are both sunk costs since she has already spent that time and money on the project and cannot get it back.

Quiz 3: Show Me the Money: the Law of Supply