Question 1

"Buy now,pay later" or "try it before you buy it" are examples of

Accepted Answer

These strategies leverage the endowment effect, where people value things more highly simply because they own them or have them in their possession, even temporarily.

Question 2

A business incurs the following costs per unit: Labor - $5/unit;Materials $3/unit and rent - $5000/month.If the firm produces 1000 units a month,the total costs equals

Accepted Answer

Total cost per unit = Labor + Materials + Rent per unit
Total cost per unit = $5 + $3 + ($5000/1000) 
Total cost per unit = $8
Total cost for 1000 units = $8 * 1000 = $8000
Therefore, the total cost for producing 1000 units is $13,000.

Question 3

A business incurs the following costs per unit: Labor - $5/unit;Materials $3/unit and rent - $5000/month.If the firm produces 1000 units a month,the total fixed costs equals

Accepted Answer

Fixed costs are costs that do not change with the level of output. In this scenario, rent is a fixed cost at $5,000 per month, regardless of the number of units produced.

Question 4

A professor will sometimes pay higher prices for some goods compared to an undergraduate student because

Accepted Answer

Crowded and understaffed discount stores impose higher time costs, and professors have less free time due to their teaching and research responsibilities. Therefore, professors may choose to pay higher prices for the convenience of shopping at a less crowded and better-staffed store. It is not necessarily true that professors value the item more, like wasting money, or like to show off.

Question 5

A manager invests $400,000 in a technology to reduce overall costs of production.The company managed to reduce their cost per unit from $2 to $1.85.Ceteris peribus,if the firm continues its production in the same economic environment,the firms economic profits should

Accepted Answer

The answer of A manager invests $400,000 in a technology...

Question 6

A business incurs the following costs per unit: Labor - $5/unit;Materials $3/unit and rent - $5000/month.If the firm produces 1000 units a month,the total variable costs equals

Accepted Answer

Total variable cost per unit = Labor cost + Material cost = $5 + $3 = $8/unit
Total variable cost for 1000 units = $8/unit x 1000 units = $8000

Question 7

When a firm ignores the opportunity cost of capital when making investment or shutdown decisions,this is a case of

Accepted Answer

The answer of When a firm ignores the opportunity cost...

Question 8

A company currently sells 10,000 units at $9/unit and makes $20,000 accounting profit.Variable costs currently stand at $6 per unit.By how much would variable costs have to increase before the company makes zero accounting profits?

Accepted Answer

The company makes $20,000 accounting profit, which means total revenue minus total costs equals $20,000. Total revenue is 10,000 units * $9 = $90,000. Total costs are $90,000 - $20,000 = $70,000. Current variable costs are 10,000 units * $6 = $60,000. Fixed costs are $70,000 - $60,000 = $10,000. To make zero profit, total costs must equal total revenue, so variable costs must increase by $20,000. This means an increase of $20,000 / 10,000 units = $2.00 per unit.

Question 9

Jim is planning on attending a football game that costs $40.He will have to take the day off from the work losing 8 hours of work.His hourly wage is $10.He estimates it will cost him around $20 for gas and parking at the game.Jim's implicit (opportunity)cost of attending the game equals

Accepted Answer

The implicit cost is the opportunity cost of not working, which is 8 hours x $10/hour = $80.

Question 10

The fixed-cost fallacy occurs when

Accepted Answer

The fixed-cost fallacy occurs when a firm considers irrelevant costs and/or considers overhead or depreciation costs to make short-run decisions. Therefore, both option A and C are correct, making option D the best choice.

Question 11

Jim is planning on attending a football game that costs $40.He will have to take the day off from the work losing 8 hours of work.His hourly wage is $10.He estimates it will cost him around $20 for gas and parking at the game.Jim's total economic cost of attending the game equals

Accepted Answer

Jim's total economic cost includes the ticket price ($40), lost wages (8 hours x $10/hour = $80), and gas and parking ($20), totaling $140.

Question 12

The hidden-cost fallacy occurs when

Accepted Answer

The hidden-cost fallacy occurs when a firm ignores relevant costs. This can lead to decisions that appear financially sound in the short run but end up being more costly in the long run. For example, a firm may choose to outsource production to save on labor costs, but fail to consider the quality control issues that can arise from using an external supplier.

Question 13

All the following are examples of accounting costs,except

Accepted Answer

Cost of equity is not an accounting cost as it refers to the cost of the investor's capital and is not a specific expense incurred by the business. The other options are examples of accounting costs as they are actual expenses incurred by the business.

Question 14

A firm wishes to fire an employee.The company will save up to $3000 per month on his compensation package.It is estimated that the employee contributes around $4,100 to the company.The firm

Accepted Answer

The firm will save $3000 by firing the employee but will lose out on the $4100 contribution the employee brings. Therefore, the hidden cost of firing the employee is $1100. If the hidden cost of not firing the employee is greater than $1100, then the firm should fire the employee. Thus, the firm should fire the employee only if the hidden cost is $1500, which is greater than $1100. Therefore, option C is the best answer.

Question 15

A car dealership union negotiates a contract that dramatically increases all salesmen salaries.If one of the salesman is thinking of changing careers to be a hardware salesman,his opportunity cost

Accepted Answer

If the salesman decides to become a hardware salesman, his opportunity cost would increase because the dramatic increase in salaries negotiated by the union would make his current job as a car salesman more financially attractive. Therefore, he would be giving up a higher-paying job to pursue a career in hardware sales.

Question 16

Fixed costs are

Accepted Answer

Fixed costs are costs that do not vary with output, such as rent, salaries, and insurance. They are consistent regardless of how much output a company produces.

Question 17

A manager invests $400,000 in a technology to reduce overall costs of production.The company managed to reduce their cost per unit from $2 to $1.85.Ceteris peribus,if the firm continues its production in the same economic environment,the firms accounting profits should

Accepted Answer

By reducing the production cost per unit, the company will be able to increase its profit margin. This means that for every unit sold, the company will earn a higher profit. As a result, the overall accounting profits should increase. However, it is important to note that other factors, such as competition and market demand, may also impact the company's profits.

Question 18

Shifting resources away from producing one good in order to produce another is an example of

Accepted Answer

Shifting resources away from producing one good in order to produce another is an example of opportunity cost. Opportunity cost refers to the cost of an alternative that must be forgone in order to pursue a certain action. In this case, the opportunity cost of producing one good is the production of another good that could have been produced with those same resources. Therefore, the best choice is C. None of the other options are applicable in this scenario.

Question 19

Susan can bake 200 cookies in an hour or watch her favorite tv show.If she chooses to watch her show,her opportunity cost is

Accepted Answer

The opportunity cost is the value of the next best alternative foregone. In this case, if Susan chooses to watch her TV show, she forgoes baking 200 cookies, which is the opportunity cost.

Question 20

A manager invests $400,000 in a technology to reduce overall costs of production.The company managed to reduce their cost per unit from $2 to $1.85.This affects

Accepted Answer

The investment in technology will lead to a reduction in costs per unit, which will increase both economic and accounting profits. Economic profits are total revenue minus total costs (including opportunity costs), while accounting profits are total revenue minus explicit costs (such as wages and materials). By reducing the cost per unit of production, the company will decrease its total costs, leading to an increase in both economic and accounting profits.

Quiz 3: Benefits, Costs, and Decisions