d. not sell the ticket because the marginal benefit is less than the average cost.
ANSWER: a
42. Suppose the cost of flying a 350-seat plane for an airline is $350,000 and there are 10 empty seats on a flight. The
marginal cost of flying a passenger is
a. $350.
b. $3,500.
c. $350,000.
d. This cannot be determined from the information given.
ANSWER: d
43. Savion is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for
$5800. Savion discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential
buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?
a. He should sell the car now for $3,800.
b. He should keep the car since it wouldn’t be rational to spend $6,400 restoring a car and then sell it for only
$5,800.
c. He should complete the additional work and sell the car for $5,800.
d. It does not matter which action he takes since the outcome will be the same either way.
ANSWER: a
44. Rami Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.2 million. If the
company builds a 25th house, its total cost will increase to $4.375 million. Which of the following statements is correct?
a. For the first 24 houses, the average cost per house was $170,000.
b. The marginal cost of the 25th house, if it is built, will equal $175,000.
c. If the company can sell the 25th house for at least $167,000, then it should build it.
d. The company should never build the 25 th house because this increases its total cost.
ANSWER: b
45. Suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the
marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a
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Ch 01: MC Algo
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customer is willing to pay
a. more than $40; because the average benefit will exceed the marginal cost.
b. more than $40; because the marginal benefit will exceed the marginal cost.
c. more than $80; because the average benefit will exceed the marginal cost.
d. more than $80; because the marginal benefit will exceed the marginal cost.
ANSWER: b
46. A donut shop sells fresh-baked donuts from 6 a.m. until 5 p.m. every day. The shop does not sell day-old donuts, so all
unsold donuts are thrown away at 5 p.m. each day. The cost of making and selling a dozen donuts is $1; there are no costs
associated with throwing donuts away. If the manager has seven dozen donuts left at 4 p.m. on a particular day, which of
the following alternatives is most attractive?
a. Lower the price of the remaining donuts, even if the price falls below $1 per dozen.
b. Lower the price of the remaining donuts, but under no circumstances should the price fall below $1 per dozen.
c. Throw the donuts away and produce seven fewer dozen donuts tomorrow.
d. Starting tomorrow, lower the price on all donuts so they will all be sold earlier in the day.
ANSWER: a
47. Bo buys and sells real estate. Two weeks ago, he paid $400,000 for a house on Cypress Street, intending to spend
$50,000 on repairs and then sell the house for $500,000. Last week, the city government announced a plan to build a new
landfill on Cypress Street just down the street from the house Bo purchased. As a result of the city's announced plan, Bo is
weighing two alternatives: He can go ahead with the $50,000 in repairs and then sell the house for $390,000, or he can
forgo the repairs and sell the house as it is for $350,000. He should
a. keep the house and live in it.
b. go ahead with the $50,000 in repairs and sell the house for $390,000.
c. forgo the repairs and sell the house as it is for $350,000.
d. move the house from Cypress Street to a more desirable location, regardless of the cost of doing so.
ANSWER: c
48. You are considering staying in college another semester so that you can complete a major in finance. In deciding
whether or not to stay you should
a. compare the total cost of your education to the total benefits of your education.
b. compare the total cost of your education to the benefits of staying one more semester.
c. compare the cost of staying one more semester to the benefits of staying one more semester.
d. compare the total benefits of your education to the cost of staying one more semester.
ANSWER: c
49. You go to the movieplex where movies ordinarily cost $8.00. You are intending to see a movie for which you have a