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Question 230 MCQ · 1.0 marks
Imagine that you have started a snack food delivery business on your college campus. Students
send you orders for snacks, such as potato chips and candy bars, via the Internet. You shop at
local grocery stores to fill these orders and then deliver the orders. To operate this business, you
pay $500 a month to lease computer time from a local Web-hosting company to use its server to
host and maintain your website. You also own a sports utility vehicle (SUV) that you use to make
deliveries. Your monthly car payment is $300, and you pay $100 a month in insurance costs. Each
order that you fill takes, on average, a half hour and consumes $0.50 worth of gasoline. When you
fill an order, you pay the grocer for the merchandise. You then collect a payment, including a
delivery fee, from the students to whom you sell. If you did not operate this business, you could
work at the campus dining hall, earning $6 an hour. Right now, you operate your business five
days a week, Monday through Friday. On weekends, your business is idle, and you work in the
campus dining hall.
Based on the above data, answer the given subquestions.
Your explicit costs include
6406533822882.
Leasing computer time
6406533822883.
Gasoline
6406533822884.
Money you pay grocers
6406533822885.
All of these
Published solution
**1. Concept:** Explicit costs are actual money payments to outsiders.
**2. Check:** Computer leasing ($500), gasoline ($0.50 per order) and money paid to grocers are all cash payments to others.
**3. Conclude:** All of these are explicit costs.
Answer: D — All of these.
A: **Incorrect:** It is explicit, but the other two are explicit too.
B: **Incorrect:** It is explicit, but the other two are explicit too.
C: **Incorrect:** It is explicit, but the other two are explicit too.
D: **Correct:** All three are cash payments to outsiders.
Imagine that you have started a snack food delivery business on your college campus. Students
send you orders for snacks, such as potato chips and candy bars, via the Internet. You shop at
local grocery stores to fill these orders and then deliver the orders. To operate this business, you
pay $500 a month to lease computer time from a local Web-hosting company to use its server to
host and maintain your website. You also own a sports utility vehicle (SUV) that you use to make
deliveries. Your monthly car payment is $300, and you pay $100 a month in insurance costs. Each
order that you fill takes, on average, a half hour and consumes $0.50 worth of gasoline. When you
fill an order, you pay the grocer for the merchandise. You then collect a payment, including a
delivery fee, from the students to whom you sell. If you did not operate this business, you could
work at the campus dining hall, earning $6 an hour. Right now, you operate your business five
days a week, Monday through Friday. On weekends, your business is idle, and you work in the
campus dining hall.
Based on the above data, answer the given subquestions.
Your implicit cost will be
6406533822886.
$300 car payment
6406533822887.
$100 a month insurance cost
6406533822888.
Your wage at campus dining hall $6 an hour
6406533822889.
All of these
Published solution
**1. Concept:** Implicit costs are opportunity costs of resources you own, with no cash payment.
**2. Check:** The car payment and insurance are cash payments (explicit). The $6 per hour you could earn at the dining hall is income you give up by using your own time.
**3. Conclude:** The implicit cost is your dining hall wage of $6 an hour.
Answer: C — Your wage at campus dining hall $6 an hour.
A: **Incorrect:** This is a cash payment, so it is explicit.
B: **Incorrect:** This is a cash payment, so it is explicit.
C: **Correct:** It is forgone income from your own time.
D: **Incorrect:** Only the dining hall wage is implicit.
Imagine that you have started a snack food delivery business on your college campus. Students
send you orders for snacks, such as potato chips and candy bars, via the Internet. You shop at
local grocery stores to fill these orders and then deliver the orders. To operate this business, you
pay $500 a month to lease computer time from a local Web-hosting company to use its server to
host and maintain your website. You also own a sports utility vehicle (SUV) that you use to make
deliveries. Your monthly car payment is $300, and you pay $100 a month in insurance costs. Each
order that you fill takes, on average, a half hour and consumes $0.50 worth of gasoline. When you
fill an order, you pay the grocer for the merchandise. You then collect a payment, including a
delivery fee, from the students to whom you sell. If you did not operate this business, you could
work at the campus dining hall, earning $6 an hour. Right now, you operate your business five
days a week, Monday through Friday. On weekends, your business is idle, and you work in the
campus dining hall.
Based on the above data, answer the given subquestions.
Last week you purchased five large cases of Fritos for a customer who, as it turned out, did not
accept delivery. You paid $100 for these cases. You have a deal with your grocers that they will pay
you $0.25 for each dollar of returned merchandise. Just this week, you found a fraternity on
campus that will buy the five cartons for $55 (and will pick them up from your apartment, relieving
you of the need to deliver them to the frat house).
What is the opportunity cost of filling this order in $ (i.e., selling these cartons to the fraternity)?
_____________________
Published solution
**1. Concept:** Opportunity cost is the value of the best alternative given up. The $100 already paid is a sunk cost.
**2. Alternative:** The grocers pay $0.25 per dollar of returned merchandise:
\[
0.25\times100=\$25
\]
**3. Conclude:** Selling to the fraternity means giving up the $25 refund.
Answer: \(\$25\).
Imagine that you have started a snack food delivery business on your college campus. Students
send you orders for snacks, such as potato chips and candy bars, via the Internet. You shop at
local grocery stores to fill these orders and then deliver the orders. To operate this business, you
pay $500 a month to lease computer time from a local Web-hosting company to use its server to
host and maintain your website. You also own a sports utility vehicle (SUV) that you use to make
deliveries. Your monthly car payment is $300, and you pay $100 a month in insurance costs. Each
order that you fill takes, on average, a half hour and consumes $0.50 worth of gasoline. When you
fill an order, you pay the grocer for the merchandise. You then collect a payment, including a
delivery fee, from the students to whom you sell. If you did not operate this business, you could
work at the campus dining hall, earning $6 an hour. Right now, you operate your business five
days a week, Monday through Friday. On weekends, your business is idle, and you work in the
campus dining hall.
Based on the above data, answer the given subquestions.
Last week you purchased five large cases of Fritos for a customer who, as it turned out, did not
accept delivery. You paid $100 for these cases. You have a deal with your grocers that they will pay
you $0.25 for each dollar of returned merchandise. Just this week, you found a fraternity on
campus that will buy the five cartons for $55 (and will pick them up from your apartment, relieving
you of the need to deliver them to the frat house).
Should you sell the Fritos to the fraternity? _________________
6406533822891.
Yes
6406533822892.
No
Published solution
**1. Compare:** The fraternity pays $55. The best alternative is the $25 refund from the grocers. The $100 paid is sunk.
**2. Decide:** \(55>25\), so selling gives $30 more.
**3. Conclude:** Yes, sell the Fritos to the fraternity.
Answer: A — Yes.
A: **Correct:** $55 is more than the $25 refund.
B: **Incorrect:** Rejecting $55 for a $25 refund would lose $30.
Imagine that you have started a snack food delivery business on your college campus. Students
send you orders for snacks, such as potato chips and candy bars, via the Internet. You shop at
local grocery stores to fill these orders and then deliver the orders. To operate this business, you
pay $500 a month to lease computer time from a local Web-hosting company to use its server to
host and maintain your website. You also own a sports utility vehicle (SUV) that you use to make
deliveries. Your monthly car payment is $300, and you pay $100 a month in insurance costs. Each
order that you fill takes, on average, a half hour and consumes $0.50 worth of gasoline. When you
fill an order, you pay the grocer for the merchandise. You then collect a payment, including a
delivery fee, from the students to whom you sell. If you did not operate this business, you could
work at the campus dining hall, earning $6 an hour. Right now, you operate your business five
days a week, Monday through Friday. On weekends, your business is idle, and you work in the
campus dining hall.
Based on the above data, answer the given subquestions.
Last week you purchased five large cases of Fritos for a customer who, as it turned out, did not
accept delivery. You paid $100 for these cases. You have a deal with your grocers that they will pay
you $0.25 for each dollar of returned merchandise. Just this week, you found a fraternity on
campus that will buy the five cartons for $55 (and will pick them up from your apartment, relieving
you of the need to deliver them to the frat house).
Your sunk cost of doing business is (in $) ____________________
Published solution
**1. Concept:** A sunk cost is money already spent that cannot be recovered.
**2. Calculate:** You paid $100 for the cartons. The grocers will take them back and refund \(0.25\times100=\$25\). So $25 is recoverable and the rest is lost whatever you do:
\[
100-25=\$75
\]
**3. Conclude:** The sunk (unrecoverable) cost is $75.
Answer: \(\$75\).
Based on the above data, answer the given subquestions.
What is the cost-minimizing input combination if the firm wants to produce 1,000 units per year?
L* = _________________
Published solution
**1. Use the ratio:** \(K/L=1/4\), so \(K=L/4\).
**2. Use the output target:**
\[
50\sqrt{L\cdot\tfrac L4}=50\cdot\tfrac L2=25L=1000\;\Rightarrow\;L=40
\]
Answer: \(L^*=40\).
Elmo finds himself at a Coke machine on a hot and dusty Sunday. The Coke machine requires
exact change-two quarters and a dime. No other combination of coins will make anything come
out of the machine. No stores are open; no one is in sight. Elmo is so thirsty that the only thing he
cares about is how many soft drinks he will be able to buy with the change in his pocket; the more
he can buy, the better.
Based on the above data, answer the given subquestions.
If Elmo has 2 quarters and a dime in his pockets, he can buy 1 soft drink. How many soft drinks
can he buy if he has 4 quarters and 2 dimes? _______________
Published solution
**1. Understand:** One drink needs exactly 2 quarters and 1 dime together.
**2. Count:** With 4 quarters, he can make \(4/2=2\) sets of quarters. With 2 dimes he can make 2 sets of dimes. The smaller is 2.
**3. Conclude:** He can buy \(\min(4/2,\,2/1)=2\) drinks.
Answer: \(2\).
Elmo finds himself at a Coke machine on a hot and dusty Sunday. The Coke machine requires
exact change-two quarters and a dime. No other combination of coins will make anything come
out of the machine. No stores are open; no one is in sight. Elmo is so thirsty that the only thing he
cares about is how many soft drinks he will be able to buy with the change in his pocket; the more
he can buy, the better.
Based on the above data, answer the given subquestions.
Does Elmo have convex preferences between dimes and quarters?
6406533822895.
Yes
6406533822896.
No
Published solution
**1. Understand:** Elmo only cares about the number of drinks, which needs coins in a fixed ratio of 2 quarters to 1 dime. They are perfect complements, with utility \(\min(Q/2,\,D)\).
**2. Concept:** Perfect complements have L-shaped indifference curves, and these preferences are convex (a mix is at least as good as the extremes).
**3. Conclude:** Yes, Elmo has convex preferences.
Answer: A — Yes.
A: **Correct:** Perfect complements give convex preferences.
B: **Incorrect:** Preferences over perfect complements are convex, so this is wrong.
Based on the above data, answer the given subquestions.
Find the optimal input combination given that the firm wishes to produce 200 units of output.
L* = _________________
Published solution
**1. Compare output per dollar:** \(\frac{MP_L}{w}=\frac{10}{5}=2\) and \(\frac{MP_K}{r}=\frac{2}{2}=1\). Labour gives more output per dollar.
**2. Use only labour:** For \(Q=200\): \(10L=200\Rightarrow L=20\), \(K=0\).
Answer: \(L^*=20\).
**1. Concept:** For \(F=K^pL^q\), scaling both inputs by \(\lambda\) scales output by \(\lambda^{p+q}\).
**2. Apply:** If \(p+q=1\), there are constant returns to scale, so the function *may* show constant returns. If \(p+q=1\), it does not show increasing returns. The marginal products \(qK^pL^{q-1}\) and \(pK^{p-1}L^q\) change with the inputs.
**3. Conclude:** The only correct statement is that it may exhibit constant returns to scale.
Answer: A — May exhibit constant returns to scale.
A: **Correct:** Constant returns occur when \(p+q=1\).
B: **Incorrect:** \(p+q=1\) gives constant, not increasing, returns.
C: **Incorrect:** \(MP_L\) changes with \(L\) unless \(q=1\).
D: **Incorrect:** \(MP_K\) changes with \(K\) unless \(p=1\).
a firm’s total output divided by total labour input
6406533822916.
the extra output produced by employing one more unit of labour while
allowing other inputs to vary
6406533822917.
the extra output produced by employing one more unit of labour while
holding other inputs constant
6406533822918.
the extra output produced by employing one more unit of capital while
holding labour input constant
Published solution
**1. Concept:** Marginal product of an input is the extra output from one more unit of that input while other inputs are held constant.
**2. Apply:** For labour, it is the extra output from one more unit of labour, holding other inputs constant.
**3. Conclude:** The third option is the definition.
Answer: C — the extra output produced by employing one more unit of labour while
holding other inputs constant.
A: **Incorrect:** This is average product of labour.
B: **Incorrect:** This lets other inputs vary; it is not MPL.
C: **Correct:** This is the definition of marginal product of labour.
D: **Incorrect:** This describes the effect of capital, which is MPK.
average total costs are minimized
**Corporate Finance**
**Section Id :** 64065379960
**Section Number :** 13
**Section type :** Online
**Mandatory or Optional :** Mandatory
**Number of Questions :** 26
**Number of Questions to be attempted :** 26
**Section Marks :** 100
**Display Number Panel :** Yes
**Section Negative Marks :** 0
**Group All Questions :** No
**Enable Mark as Answered Mark for Review and**
No
**Clear Response :**
**Section Maximum Duration :** 0
**Section Minimum Duration :** 0
**Section Time In :** Minutes
**Maximum Instruction Time :** 0
Published solution
**1. Concept:** When marginal cost is below average total cost, ATC falls. When MC is above ATC, ATC rises.
**2. Apply:** If MC = ATC, ATC is neither rising nor falling. This happens at the bottom of the U-shaped ATC curve.
**3. Conclude:** ATC is at its minimum.
Answer: D — average total costs are minimized
**Corporate Finance**
**Section Id :** 64065379960
**Section Number :** 13
**Section type :** Online
**Mandatory or Optional :** Mandatory
**Number of Questions :** 26
**Number of Questions to be attempted :** 26
**Section Marks :** 100
**Display Number Panel :** Yes
**Section Negative Marks :** 0
**Group All Questions :** No
**Enable Mark as Answered Mark for Review and**
No
**Clear Response :**
**Section Maximum Duration :** 0
**Section Minimum Duration :** 0
**Section Time In :** Minutes
**Maximum Instruction Time :** 0.
A: **Incorrect:** ATC falls only when MC is below ATC.
B: **Incorrect:** ATC is not at a maximum; MC cuts ATC from below at its minimum.
C: **Incorrect:** ATC rises only when MC is above ATC.
D: **Correct:** MC = ATC at the minimum point of ATC.
