(1) The opportunity cost of something is
(a) a measure of scarcity of the good
(b) what you sacrifice to get the good
(c) what you are willing to pay for the good
(d) what price you paid for the good.

(2) Suppose that your tuition to attend college is $10,000 per year and you spend $4,000 per year on room and board. Were you working full time, you could earn $20,000 per year. What is the opportunity cost of attending college?

(a) $10,000
(b)$14,000
(c)$24,000
(d)$30,000
(e)$34,000

(3) Suppose Julianne runs a business in which her marginal cost of staying open per hour are illustrated in the following table

        Hours of operation     Marginal benefit
            1                                32
            2                                28
            3                                24
            4                                20
            5                                16
            6                                 12

(a) Suppose that Julianne spends 4$ for electricity for each hour she stays open and she can easily make at least $16/hour in an alternative job. She also pay a rent $300 a month. How many hours she should work.
(b) Suppose that we observe Julianne working four 4 hours what must her marginal cost be.
(c) Explain why one should not include the rent payment made in the calculation of opportunity cost.

(4) Fixed costs are
(a)costs that change as the level of activity changes
(b)costs that do not change as the level of activity changes
(c)costs in the form of actual cash payments
(d)the opportunity cost of nonpurchased inputs.
(e)All of the above

(5)When one person or nation can produce the good at a lower cost than another, it is said to have

(a)market advantage
(b)a comparative advantage
(c)an absolute advantage
(d)a specialization advantage
(e)non of the above

(6) When one person or nation can produce the good at a lower opportunity cost than another, it is said to have
(a)market advantage
(b)a comparative advantage
(c)an absolute advantage
(d)a specialization advantage
(e) non of the above
 
 

Use the following information to address questions (7), (8) and (9)
 
 

Consider two individuals Billy and Blithe who produces carrots and apples. Their hourly productivity are as folows:
 
 

            Apples/hr             Carrots/hr

Willy         6                             4

Blithe         3                             1

(7)Which of the following is true
(a)Willy has an absolute advantage in producing apples but not carrots
(b)Willy has an absolute advantage in producing carrots but not apples
(c)Willy has an absolute advantage in producing both the goods.
(d)Willy has an absolute advantage in producing neither good.

(8) Willy's opportunity cost of producing one carrot is

(a)2/3 apple
(b)3/2 apple
(c)4 apples
(d)1/4 apples
(e)none of the above

(9) Show how specialization helps to increase the total output in this two-good two-person economy