MGEA01H3 Chapter Notes - Chapter 1-2: Opportunity Cost

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erinllama288

31 Aug 2015

School

UTSC

Department

Economics for Management Studies

Course

MGEA01H3

Professor

Michael H O

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MGEA01H3 Full Course Notes

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The real/true cost of an item is its opportunity cost which is what the individual needs to sacrifice or to give up in order to obtain this item. When individuals are making a choice they compare and weight out the costs with the benefits of doing something over another. This may lead to decisions or whether to do a bit more or bit less of an activity also known as a marginal decision. The study of these marginal decisions are known as a marginal analysis. An individual"s choice can affect another individual"s choice and vice versa; the result of these unintended results from the individual"s choice creates a common economic situation known as an interaction of choices. Due to these interactions in the market economy, people divide tasks among themselves to provide goods and services that others need in return for different goods and services; this is known as a trade.

Related Questions

Part 1

The term opportunity cost suggests that

A.	in any exchange situation where one person gains, someone else must lose
	B. not all individuals make the most of life's opportunities
C.	executives do not always recognize opportunities for profit as quickly as they should
	D.the only factor that is important in decision making is cost
E.	because goods are scarce, in order to get some good you must give up some other good in return

Part 2:

Which of the following is an example of division of labor?

	A.an author writing a book one chapter at a time
B.	a firm trying to get rid of a labor union
C.	separating resources into four categories: land, labor, capital, and entrepreneurial ability
D.	allocating revenue among a firm's resource suppliers
E.	dividing an assembly process into separate steps

Part 3:

In economics, specialization means

	A.producing something using only one type of resource, such as labor
B.	producing something using only one type of labor
C.	focusing efforts on a particular product or a single task
D.	producing only one unit of output
E.	producing something using only one unit of a variable resource

Resources are allocated among industries in response to signals sent by both product and resources ...................... . These also indicate which resources would be combined in what way, in the production of a good or service, in order to ..................... production costs, thereby using society's scarce resources most ...................... . A person can increase his income by producing .................... output or by specializing in the production of something for which society is willing to pay a higher price (relative to cost). The ........................ of goods, services and resources are not determined by some government agency, but by countless decisions of individuals about which goods and services to produce and buy.

4. Decisions made âat the marginâ entail a choice based upon_____________ of a decision.

a. the additional benefits
b. the total costs
c. comparing the total benefits and costs
d. comparing the additional benefits and costs
5. 100 units of Good X are available but individuals desire 500units. ______________ will determine who attains Good X, and whodoes not.

a. A rationing device
b. Opportunity Cost
c. Utility
d. Natural Selection

6. Individuals will continue consuming so long as:

a. The price of a good continues to decrease
b. The marginal costs of consuming are outweighed by the marginalbenefits
c. The individual seeks additional utility
d. The individual is willing and able

8. If the cross-price elasticity of two goods is positive, thenthose two goods are
a. substitutes.
b. complements.
c. normal goods.
d. inferior goods.

11. The basic reason most supply curves are upward sloping isthat:

a. More firms are in the market, therefore more goods areproduced.
b. Because more quantity is being demanded, suppliers raise theprice.
c. Producers face higher opportunity costs when producing higherlevels of quantity, so they must receive a higher price.
d. Producers seek to maximize total revenue.

18. When the price of bubble gum is $0.60, the quantity demanded is500 packs per day. When the price falls to $0.50, the quantitydemanded increases to 900. The demand for gum would beconsidered:

a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.

20. Inefficient Production implies which of the following:

a. it is impossible to produce more of one good without producingless of another
b. there are too few resources
c. there are too many resources
d. it is possible to produce more of one good without producingless of another

21. Workers at a bicycle assembly plant currently make minimumwage. If the federal government increases the minimum wage by $1.00an hour it is likely that the

a. demand for bicycle assembly workers will increase.
b. supply of bicycles will shift to the right.
c. supply of bicycles will shift to the left.
d. firm must increase output to maintain profit levels.

24. Suppose at a price of $5 and at a price of $9, John purchases40 units of good X. Given this information, we know that Johnâsdemand for good X is
a. perfectly elastic at all prices.
b. inelastic at all prices.
c. unit elastic between the prices of $5 and $9.
d. perfectly elastic between the prices of $5 and $9.
e. perfectly inelastic between the prices of $5 and $9.

25. If the price of good A decreases by 10 percent and the quantitydemanded of good B decreases by 10 percent, this is evidence that Aand B are
a. substitute goods.
b. complement goods.
c. inferior goods.
d. normal goods.
e. not related.

6. For an individual to achieve consumer equilibrium when consumingtwo goods, A and B, the individual must satisfy the followingcondition:

a. TUA = TUB
b. TUA/PA = TUB/PB
c. MUA = MUB
d. MUA/PA = MUB/PB
e. MUA/PB = MUB/PA

7. Which of the following statements is correct regarding a firm'sdecision making?
a. The decision to shut down and the decision to exit are bothshort-run decisions.
b. The decision to shut down and the decision to exit are bothlong-run decisions.
c. The decision to shut down is a short-run decision, whereas thedecision to exit is a long-run decision.
d. The decision to exit is a short-run decision, whereas thedecision to shut down is a long-run decision.

Table 1

Output Total Cost
0 $20
1 $30
2 $41
3 $51
4 $65
5 $75
6 $84
7 $105

13. Refer to Table 1. The marginal cost of producing the fifth unitof output is
a. $55.00
b. $15.00
c. $9.00
d. $10.00

21. A perfectly competitive firm can produce its current level ofoutput at an average total cost of $10 and a marginal cost of $8.If the market price of the product is currently $8, what should thefirm do?

a. The firm should definitely shut down since average total costexceeds price.
b. The firm should shut down if average variable cost is $8 orgreater, but the firm should continue to produce the current levelof output if average variable cost is less than $8.
c. The firm should increase production in order to increaseprofit.
d. The firm should continue to produce, but it should decreaseproduction in order to increase profit.
24. In the long run all costs are variable. Thus, aprofit-maximizing firm may exit:

a. When Price < Average Total Cost
b. When Price > Average Total Cost
c. When Average Revenue > Average Fixed Cost
d. When Average Revenue > Marginal Cost

25. Marginal cost tells us the
a. value of all resources used in a production process.
b. marginal increment to profitability when price isconstant.
c. amount by which total cost rises when output is increased by oneunit.
d. amount by which output rises when labor is increased by oneunit.

26. For a perfectly competitive firm:
a. marginal revenue is equal to price.
b. price is equal to marginal cost at the output level thatmaximizes profit.
c. selling an additional unit of the good it produces increasestotal revenue by the price of the good.
d. a and b
e. a, b, and c

MGEA01H3 Chapter Notes - Chapter 1-2: Opportunity Cost

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