# Globale Microeconomics

## Quiz 7 :Costs

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Four years after graduating from college you must decide if you want to go on as an accountant (your college major)or if you want to make a career change and become a singer. The cost of your education will matter for your decision.
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At this point the cost of your education represents a sunk cost and therefore should not figure into your decision. You incur it no matter what decision you make.

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When buying a piece of equipment, it is always best for the firm to pay cash instead of borrowing the funds since this renders the equipment less costly.
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It depends. The opportunity cost of the capital when paying cash is the interest the firm receives on its cash reserves. This is an implicit cost. The opportunity cost of the capital when the funds are borrowed is the interest the firm must pay to the lender. This is an explicit cost. If the rate the firm receives on its cash reserves exceeds the rate at which it borrows, the firm is better off borrowing the funds to buy the equipment.

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Your company makes copper pipes. Over the years, you have collected a large inventory of raw copper. The production process involves melting the copper and shaping it into pipes. You also have a large stockpile of pennies. Suppose the price of copper rises so much that the copper in the penny becomes worth more than one cent. Should you melt down your pennies?
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Essay

This problem appeared as a puzzle in the Journal of Economic Perspectives (Winter, 1988). It is true (in this problem)that the pennies when melted currently have a value greater than one cent. Yet, the price of copper can fluctuate. If the price of copper stays high, it does not matter if you melt pennies or not. However, if the price of copper falls so that the value of the copper in the penny falls below one cent, your unmelted pennies are still worth one cent. Your melted pennies would be worth less than one cent. Thus, as long as you have some other source of copper, you are better off melting that copper and not the pennies.

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The high cost of advertising during the Super Bowl will
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The cost of waiting two months for health care to address a debilitating problem in Canada is most accurately described as
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Variable costs are
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If Option A costs $40 and yields 20 units of output, and Option B costs$50 and yields 30 units of output,
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Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work full time in her own business. She will invest her savings of$50,000 (which currently has an annual 10% rate of return)into the business. Her annual opportunity cost of this new business is
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Johnny has worked as a CPA for five years and wants to open his own public accounting practice. The cost of his college degree in accounting represents
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Fixed costs are
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You have two career options. You can work for someone else for $50,000 a year, or, you can run your own business, with an annual revenue of$100,000, and explicit costs of $40,000 annually. Explain which career option a profit-maximizer would select and why. Essay Answer: Tags Choose question tag Economic costs of an input include Multiple Choice Answer: Tags Choose question tag Why might a police officer not pull over someone speeding two miles over the speed limit? Multiple Choice Answer: Tags Choose question tag Joey's Lawncutting Service rents office space from Joey's dad for$300 per month. A similar office space in the same building rents for $545 per month. What is the economic profit earned by Joey's dad? Multiple Choice Answer: Tags Choose question tag A firm's marginal cost can always be thought of as the change in total cost if Multiple Choice Answer: Tags Choose question tag If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as Multiple Choice Answer: Tags Choose question tag If Option A costs$40 and yields 20 units of output, and Option B costs \$50 and yields 20 units of output,
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Economists proclaim that competitive firms make zero economic profit in the long run. This shows how
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