Question 1

In the nation of Dictatorland,farmers traditionally feed grain to their livestock.Central planners,however,decided to increase the price of grain to make grain farmers happy and to reduce the price of bread made from that grain to make city dwellers happy.Now the price of bread is lower than the price of grain.What might we now expect?

Accepted Answer

If the price of bread is lower than the price of grain, it becomes more cost-effective for farmers to feed their livestock bread instead of grain.

Question 2

Mike has spent $800 purchasing and repairing an old motorcycle,which he expects to sell for $1,200.He discovers that he needs an additional repair,which will cost $200.He can sell the motorcycle as it is now for $400.What should he do?

Accepted Answer

Completing the repairs and selling the motorcycle for $1,200 will earn Mike a profit of $200 ($1,200 - $800 - $200). Selling the motorcycle as it is now for $400 will result in a loss of $400 ($400 - $800). Therefore, completing the repairs and selling the motorcycle is the best choice.

Question 3

Your professor loves her work,teaching economics.She has been offered other positions in the corporate world making 25 percent more,but has decided to stay in teaching.What might change her decision?

Accepted Answer

If the marginal cost of teaching increased, it would mean that the disadvantages or sacrifices associated with continuing to teach (such as time, effort, or financial opportunities given up) have become greater. This could make alternative options, like taking a corporate job, more appealing in comparison, potentially changing her decision to stay in teaching.

Question 4

According to economists,what do people respond to?

Accepted Answer

According to economists, people respond to incentives, which can either be positive (rewards) or negative (penalties). While laws and threats can also influence behavior, they are considered to be types of incentives. Therefore, the best choice is B.

Question 5

Carol has spent $2000 purchasing and repairing an old car,which she expects to sell for $2400.She discovers that she needs an additional repair,which will cost $400.She can sell the car as it is now for $2000.What should she do?

Accepted Answer

The answer of Carol has spent $2000 purchasing and repairing...

Question 6

A furniture maker currently produces 100 tables per week and sells them for a profit.She is considering expanding her operation in order to make more tables.Should she expand?

Accepted Answer

It is important for the furniture maker to consider the marginal cost of producing more tables and the marginal revenue she will earn from selling more tables. If the marginal revenue is higher than the marginal cost, then she should expand her operation. However, if the marginal cost is higher than the marginal revenue, then she should not expand. The furniture maker should also consider the demand for tables and ensure that there is enough market for the additional tables she plans to produce.

Question 7

The average cost per seat on an airplane trip from Calgary to Edmonton is $105.Suppose no refreshments are served and seven seats are empty.How could the airline company increase its profit?

Accepted Answer

Charging any price above $0 for the remaining seats would increase revenue, as the seats are currently generating no income.

Question 8

Mike has spent $500 purchasing and repairing an old fishing boat,which he expects to sell for $800.He discovers that he needs an additional repair,which will cost $400.He can sell the boat as it is now for $300.What should he do?

Accepted Answer

By completing the additional repair, Mike's total cost in the boat will be $900 ($500 + $400) but he can sell it for $800, which means he would incur a loss of $100. However, if he spends the extra $400 and completes the repair, he can sell the boat for $800, thereby making a profit of $400 ($800 - $400 - $500). Hence, completing the repairs and selling the boat is the best choice.

Question 9

When does a rational decision maker take an action?

Accepted Answer

A rational decision maker takes an action only if the marginal benefit is greater than the marginal cost. This means that the additional benefit gained from taking the action must be greater than the additional cost incurred. If the marginal benefit is less than the marginal cost, then it is not a rational decision to take the action. Similarly, the average benefit and average cost do not provide enough information about the additional gains and costs of taking an action. Therefore, option B is the correct answer.

Question 10

Stan buys a 1966 Mustang,which he plans to restore and sell.He anticipates that the cost of the car and the repairs will be $8000 and that he can sell it for $10 000.When he has spent $7000,he discovers he needs to replace the engine,which will cost $4000.He can sell the car without the new engine for $9000.What should Stan do?

Accepted Answer

If Stan decides to complete the repairs, he will have spent $11,000 ($8000 initial cost + $4000 engine replacement) and can sell the car for $10,000. This means he would operate at a loss of $1000. Therefore, it would be better for him to sell the car now for $9000 and cut his losses.

Question 11

When policymakers make policies that change the costs and benefits that people face,what can the policymakers do?

Accepted Answer

Policymakers can alter behaviors by influencing the costs and benefits that people face. For example, by implementing taxes on cigarettes, policymakers can increase the cost of smoking and encourage people to quit or reduce their consumption. Similarly, by offering subsidies for renewable energy sources, policymakers can increase the benefits of using clean energy and incentivize people to switch from fossil fuels.

Question 12

Suppose your management professor has been offered a corporate job with a 30 percent pay increase.Why has he decided NOT to take the job?

Accepted Answer

The professor has decided not to take the job likely because the marginal benefit of leaving (i.e. the increase in pay) was less than the marginal cost (e.g. leaving a job he enjoys, leaving a tenured position, etc.).

Question 13

Stan buys a 1966 Mustang,which he plans to restore and sell.He anticipates that the cost of the car and the repairs will be $10 000 and that he can sell it for $13 000.When he has spent $10 000,he discovers he needs to replace the engine,which will cost $4000.He can sell the car without the new engine for $9000.What should Stan do?

Accepted Answer

The answer of Stan buys a 1966 Mustang,which he plans...

Question 14

Tim has spent $2500 purchasing and repairing a Hummer,which he expects to sell for $3500.He discovers that he needs an additional repair,which will cost $1100.He can sell the Hummer as it is now for $900.What should he do?

Accepted Answer

Completing the repairs and selling the Hummer for $3500 would result in a profit of $3500 - ($2500 + $1100) = $900. Selling it as is for $900 would result in no profit or loss. Taking the $900 or never selling something for less than it cost would result in a loss of either $1600 or $2500. Therefore, completing the repairs and selling the Hummer would be the best choice to maximize profit.

Question 15

Lisa buys a 1982 BMW,which she plans to restore and sell.She anticipates that the cost of the car and the repairs will be $10 000 and that she can sell it for $15 000.After she has spent $10 000,she discovers she needs to replace the engine,which will cost $4000.She can sell the car without the new engine for $11 000.What should Lisa do?

Accepted Answer

The answer of Lisa buys a 1982 BMW,which she plans...

Question 16

A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $1.00. Since this shop does not sell day-old donuts the next day, what should the manager do if he still has ten dozen left at 2:30 p.m.?

Accepted Answer

Lowering the price of the remaining donuts, even if it falls below the cost of production, is the best choice as throwing them away would lead to a loss without any gain. The manager can also consider donating the donuts to a food bank or a shelter if reducing the price does not attract customers. However, the most feasible option is to lower the price and sell the remaining donuts.

Question 17

A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $2.00. Since this shop does not sell day-old donuts the next day, what should the manager do if she still has ten dozen left at 2:30 p.m.?

Accepted Answer

The manager should lower the price of the remaining donuts even if it falls below $2.00 to minimize losses, as unsold donuts will be wasted.

Question 18

Monica has spent $30 000 purchasing and repairing an old cabin,which she expects to sell for $40 000.She discovers that she needs an additional repair,which will cost $20 000.She can sell the cabin as it is now for $25 000.What should she do?

Accepted Answer

Monica should take the $25,000 because if she spends an additional $20,000 on repairs, her total cost will be $50,000, and she will only sell it for $40,000, resulting in a $10,000 loss. Selling it now minimizes her loss to $5,000.

Question 19

Lisa buys a 1982 BMW,which she plans to restore and sell.She anticipates that the cost of the car and the repairs will be $11 000 and that she can sell it for $20 000.After she has spent $11 000,she discovers she needs to replace the engine,which will cost $5000.She can sell the car without the new engine for $14 000.What should Lisa do?

Accepted Answer

The answer of Lisa buys a 1982 BMW,which she plans...

Question 20

Suppose your management professor has been offered a corporate job with a 30 percent pay increase.Why has he decided to take the job?

Accepted Answer

According to the rational decision-making model, a person will take an action if the marginal benefit of that action is greater than the marginal cost. In this case, the management professor is offered a corporate job with a 30 percent pay increase, which increases the marginal benefit of leaving the teaching profession. If the marginal benefit of leaving (higher pay) outweighs the marginal cost (leaving a profession he enjoys), then he will likely take the job. Therefore, choice B is the best answer.

Quiz 1: Ten Principles of Economics

Mike has spent $800 purchasing and repairing an old motorcycle,which he expects to sell for $1,200.He discovers that he needs an additional repair,which will cost $200.He can sell the motorcycle as it is now for $400.What should he do?

Your professor loves her work,teaching economics.She has been offered other positions in the corporate world making 25 percent more,but has decided to stay in teaching.What might change her decision?

According to economists,what do people respond to?

Carol has spent $2000 purchasing and repairing an old car,which she expects to sell for $2400.She discovers that she needs an additional repair,which will cost $400.She can sell the car as it is now for $2000.What should she do?

A furniture maker currently produces 100 tables per week and sells them for a profit.She is considering expanding her operation in order to make more tables.Should she expand?

The average cost per seat on an airplane trip from Calgary to Edmonton is $105.Suppose no refreshments are served and seven seats are empty.How could the airline company increase its profit?

Mike has spent $500 purchasing and repairing an old fishing boat,which he expects to sell for $800.He discovers that he needs an additional repair,which will cost $400.He can sell the boat as it is now for $300.What should he do?

When does a rational decision maker take an action?

When policymakers make policies that change the costs and benefits that people face,what can the policymakers do?

Suppose your management professor has been offered a corporate job with a 30 percent pay increase.Why has he decided NOT to take the job?

Tim has spent $2500 purchasing and repairing a Hummer,which he expects to sell for $3500.He discovers that he needs an additional repair,which will cost $1100.He can sell the Hummer as it is now for $900.What should he do?

A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $1.00. Since this shop does not sell day-old donuts the next day, what should the manager do if he still has ten dozen left at 2:30 p.m.?

A donut shop sells fresh baked donuts from 5 a.m. until 3 p.m. every day but Sunday. The cost of making and selling a dozen glazed donuts is $2.00. Since this shop does not sell day-old donuts the next day, what should the manager do if she still has ten dozen left at 2:30 p.m.?

Monica has spent $30 000 purchasing and repairing an old cabin,which she expects to sell for $40 000.She discovers that she needs an additional repair,which will cost $20 000.She can sell the cabin as it is now for $25 000.What should she do?

Suppose your management professor has been offered a corporate job with a 30 percent pay increase.Why has he decided to take the job?