EC 201 Midterm #1

The U.S. government is evaluating a project to build a new lighthouse in South Carolina. The cost will be $5 million. The estimated value of all the benefits (including nonmonetary benefits) of the lighthouse is $8 million. Describe how you would use the concept of opportunity cost to determine whether the lighthouse should be built?

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie.

The sunk cost, once the movie set sank, was _______.

• $10 million

• $50 million

• $60 million

• $70 million

• $180 million

Which points represent a production level that could be economically efficient?

• A and B

• B and C

• C and D

• D and A

Which of the following graphs shows the correct change in the production possibilities frontier curve if a new technology is invented that increases the productivity of watch manufacturing?

• Option A

• Option B

• Option C

• No change

Looking at the production of handbags and phones once again, if a firm has 6 workers with three workers producing handbags and three workers producing phones, what is the marginal cost of producing one additional phone if a worker changes from handbag production to phone production?

• 1.25 handbags

• 0.80 handbags

• 10 handbags

• It depends on the wage of the worker

A pizza parlor can make 100 pizzas in an evening. They make 40 pepperoni pizzas and 60 extra cheese pizzas. 100 people order pizza, but 50 people would like a pepperoni pizza and 50 would like an extra cheese pizza. This pizza parlor is what?

• Technically efficient, but not allocatively efficient nor economically efficient.

• Allocatively efficient, but not technically efficient nor economically efficient

• Technically efficient, but not allocatively efficient, and therefore, economically efficient

• Allocatively efficient, but not technically efficient, and therefore, economically efficient

Since 1950, the labor force participation rate of women with young children has been increasing dramatically. In accordance with this trend, one would predict that there has been _______________.

• An increase in the demand for child care services

• An increase in the quantity demanded of child care services

• A decrease in the demand for child care services

• A decrease in the quantity demanded of child care services

An increase in the prices of inputs will cause the equilibrium price to ______________ and the equilibrium quantity to ______________.

• increase; increase

• increase; decrease

• decrease; decrease

• decrease; increase

If (1) the cost of manufacturing computers decreases and (2) at the same time the quality improves, making computers more useful for households, which of the following is most likely to happen?

• 
  Equilibrium price will increase, equilibrium quantity will increase

• Equilibrium price may increase or decrease; equilibrium quantity will increase

• 
  Equilibrium price will decrease; equilibrium quantity will decrease

• 
  Equilibrium price may increase or decrease; equilibrium quantity will decrease

An increase in supply with an inelastic demand will cause (a greater or lesser or same) change in the equilibrium quantity than the same increase in supply with an elastic demand.

• A greater

• A lesser

• The same