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AREC 202 FINAL EXAM PRACTICE QUESTIONS AND ANSWERS (100% PASS)
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AREC 202 FINAL EXAM PRACTICE QUESTIONS AND ANSWERS (100% PASS)
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©PREP4EXAMS@2024 [REAL-EXAM-DUMPS] Monday, July 29, 2024 12:15 PMAREC 202 FINAL EXAM PRACTICE
QUESTIONS AND ANSWERS (100% PASS)
1. The optimal level of any activity (for consumers, firms or governments) is where
A) average benefits from this activity equal average costs of this activity.
B) total benefits from this activity equal total costs of this activity.
C) marginal benefits from this activity equal marginal costs of this activity.
D) marginal benefits from this activity are maximized. - ✔️✔️
1. To decide whether to increase an activity by one unit you should compare
A) opportunity costs and sunk costs
B) marginal benefits and marginal costs
C) average benefits and average costs - ✔️✔️B) marginal benefits and marginal costs
2. Assume the price for a can of Red Bull is $3. When you enter the supermarket you
are willing to pay $4 for the first can, $3.50 for the second can, $2.75 for the third can
and $1 for the fourth can. How many cans should you buy?
A) 0
B) 1
C) 2 - ✔️✔️C) 2
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3. Anna, Bertha and Carina agree on meeting at "Fresh Choice," an all-you-can-eat-
buffet restaurant, for dinner. Anna and Bertha are already inside and paid, whereby
Anna used a coupon for a free dinner and Bertha paid $9. Carina is still outside and has
not paid. Suddenly all three of them get sick, so sick that they really don't feel like eating
at all anymore. If all three understand the difference between sunk costs and
opportunity costs, which of the following statements is true:
A) Anna should eat something, because her "free" coupon is really not free since using
her coupon today has opportunity costs: she cannot use this coupon again.
B) Bertha should eat something because she paid $9 for the dinner.
C) If Carina has a free coupon (that she could also use at another time), she should use
it today and go inside to join her friends even if she does not want to eat. It would not
matter to her since she did not h - ✔️✔️D) If Anna and Bertha are too sick to eat anything
then they should not do it and instead leave, because the $9 (for Bertha) and the
foregone opportunity to use the fee coupon some other time (for Anna) are sunk costs
and should not matter for the decision whether to eat something or not.
4. Imagine the following two situations. In the first situation, you are about to buy a $25
computer game at the nearby campus store when a friend tells you that the same game
is on sale at a downtown store, which is a 30-minute walk away, for only $15. In the
second situation you are about to buy a $2,020 laptop computer at the nearby campus
store when a friend tells you that the same computer is on sale at a downtown store for
only $2,010. Assume that your opportunity costs of making the trip to the downtown
store are in both situations $5. Which one of the following statements is correct? A
rational decision-maker should
A) make the same decision in both situations.
B) be more likely to buy the computer game at the campus store than the laptop.
C) be more likely to buy the laptop at the campus store than the computer game. -
✔️✔️A) make the same decision in both situations.
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5. How does the situation in question 4 change if your opportunity costs of making the
trip to the downtown store are now in both situations $15? A rational decision-maker
A) would not make either trip.
B) should still be more likely to buy the computer game at the campus store than the
laptop.
C) should still be more likely to buy the laptop at the campus store than the computer
game. - ✔️✔️A) would not make either trip.
6. The true opportunity costs of your college education consist of
A) only money you (or whoever pays for your education) "put on the table" such as
tuition and fees, room and board, books, etc.
B) only explicit costs, such tuition and fees, and books, but not room and board since
you have to pay those anyway.
C) only implicit costs (= opportunity costs you do not actually pay out), such as foregone
wages.
D) only the explicit and implicit costs you would not have accrued had you chosen a full-
time job instead of a college education; in other words, the costs listed in B) and C). -
✔️✔️D) only the explicit and implicit costs you would not have accrued had you chosen a
full-time job instead of a college education; in other words, the costs listed in B) and C).
7. You are considering using a frequent-flyer coupon for a spring break trip to Florida.
- The regular ticket would cost $500 if you did not use the coupon.
- All other costs of that trip are $1,000.
- The most you would be willing to pay for such a vacation is $1,350 (=your value of the
trip).
- Your only alternative use for using the coupon is going to Boston to a wedding after
spring break (a trip you will make for sure no matter what you do over Spring Break).
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- The ticket to Boston would cost $400 if you do not use the coupon.
Should you use your frequent-flyer coupon for your trip to Florida?
A) No, because $1,350 < $1,500 (=$1,000 + $500)
B) No, because $1,350 < $1,400 (=$1,000 + $400)
C) No, because $1,350 is probably less than the costs you had incurred with previous
flights to get the frequent-flyer coupon.
D) Not sure, because the value of the trip to Boston is not provided.
E) Yes, since $1,350 > $1 - ✔️✔️B) No, because $1,350 < $1,400 (=$1,000 + $400)
8. Assume the same situation as in question 7, except that now the coupon can only be
used for the spring break trip to Florida and nothing else since it expires right after
spring break. Should you now use your frequent-flyer coupon for your trip to Florida?
A) No, because $1,350 < $1,500.
B) No, because $1,350 is probably less than the costs you had incurred with previous
flights to get the frequent-flyer coupon.
C) Yes, since $1,350 > $1,000. - ✔️✔️C) Yes, since $1,350 > $1,000.
9. Residents of your city are charged a fixed weekly fee of $10 for garbage collection.
They are allowed to put out as many cans as they wish. The average household
disposes of five garbage cans per week under this plan. Now suppose that your city
changes to a "tag" system. Each garbage can must have a tag affixed to it; the tags cost
$2 each and are not reusable. What effect do you think the introduction of the tag
system will have on how many garbage cans will be put out? Think "people respond to
incentives."
A) There is no difference how many garbage cans will be put out since the marginal cost
for each garbage can under each system is $2.
B) There is no difference how many garbage cans will be put out since the average cost
for each garbage can under each system is $2.
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