planned to visit, you should include
a. both the cost of driving the first 850 miles and the next 50 miles.
b. the cost of driving the first 850 miles, but not the cost of driving the next 50 miles.
c. the cost of driving the next 50 miles, but not the cost of driving the first 850 miles.
d. neither the cost of driving the first 850 miles nor the cost of driving the next 50 miles.
ANSWER: c
34. Savion's aunt gave him $25 for his birthday with the condition that Savion buys himself something. In deciding how to
spend the money, Savion narrows his options down to four choices: Option 1, Option 2, Option 3, and Option 4. Each
option costs $25. Finally, he decides on Option 2. The opportunity cost of this decision is
a. the value to Savion of the option he would have chosen had Option 2 not been available.
b. the value to Savion of Options 1, 3, and 4 combined.
c. the average of the values to Savion of Options 1, 3, and 4.
d. $25.
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ANSWER: a
35. A rational decisionmaker
a. ignores marginal changes and focuses instead on "the big picture."
b. ignores the likely effects of government policies when he or she makes choices.
c. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.
d. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of
that action and previous actions.
ANSWER: c
36. Making rational decisions at the margin means that people
a. make those decisions that do not impose a marginal cost.
b. evaluate how easily a decision can be reversed if problems arise.
c. compare the marginal costs and marginal benefits of each decision.
d. always calculate the dollar costs for each decision.
ANSWER: c
37. People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of
water.
b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have
to manipulate water prices.
d. water prices are held artificially low by governments, since water is necessary for life.
ANSWER: b
38. The marginal benefit Joseph gets from purchasing a fourth pair of shoes is
a. the same as the total benefit he gets from purchasing four pairs of shoes.
b. more than the marginal cost of purchasing the fourth pair of shoes.
c. the total benefit he gets from purchasing four pairs of shoes minus the total benefit he gets from purchasing
three pairs of shoes.
d. the total benefit he gets from purchasing five pairs of shoes minus the total benefit he gets from purchasing
four pairs of shoes.
ANSWER: c
39. After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However,
the deadline for your final decision is still months away and you may reverse this decision. Which of the following events
could prompt you to reverse this decision?
a. The marginal benefit of going to Spain increases.
b. The marginal cost of going to Spain increases.
c. The marginal benefit of going to Ireland increases.
d. The marginal cost of going to Ireland decreases.
ANSWER: a
40. A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his
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Class:
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Ch 01: MC Algo
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operation in order to serve more clients. Should he expand?
a. Yes, because cutting hair is profitable.
b. No, because he may not be able to sell more services.
c. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving
more clients.
d. It depends on the average cost of serving more clients and the average revenue he will earn from serving more
clients.
ANSWER: c
41. Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the
marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
a. sell the ticket because the marginal benefit exceeds the marginal cost.
b. sell the ticket because the marginal benefit exceeds the average cost.
c. not sell the ticket because the marginal benefit is less than the marginal cost.