Multiple-Choice-Questions
1. Which of the following is not a step in the short-run decision-making model?
a. Define the problem.
b. Identify alternatives.
c. Identify the costs and benefits of feasible alternatives.
d. Assess qualitative factors.
e. All of these are steps in the short-run decision-making model.
2. Costs that cannot be affected by any future action are called
a. Differential costs.
b. Sunk costs.
c. Inventory costs.
d. Relevant costs.
e. Joint costs.
Use the following information for Multiple-Choice Exercises 23-3 through 23-5:
Sandy is considering moving from her apartment into a small house with a fenced yard. The apartment is noisy, and she has difficulty studying. In addition, the fenced yard would be great for her dog. The distance from school is about the same from the house and from the apartment. The apartment costs $ 750 per month, and she has two months remaining on her lease. The lease cannot be broken, so Sandy must pay the last two months of rent whether she lives there or not. The rent for the house is $ 450 per month, plus utilities, which should average $ 100 per month. The apartment is furnished; the house is not. If Sandy moves into the house, she will need to buy a bed, dresser, desk, and chair immediately. She thinks that she can pick up some used furniture for a good price.
3. Refer to the information for Sandy on the previous page and above. Which of the following costs is irrelevant to Sandy’s decision to stay in the apartment or move to the house?
a. House rent of $ 450 per month
b. Utilities for the house of $ 100 per month
c. The noise in the apartment house
d. The cost of the used furniture
e. The last two months of rent in the apartment
4. Refer to the information for Sandy on the previous page and above. Which of the following is a qualitative factor?
a. House rent of $ 450 per month
b. Utilities for the house of $ 100 per month
c. The noise in the apartment house
d. The cost of the used furniture
e. The last two months of rent in the apartment
5. Refer to the information for Sandy on the previous page and above. Suppose that the apartment building was within walking distance to campus and the house was five miles away. Sandy does not own a car. How would that affect her decision?
a. It would make the house more desirable.
b. It would make the apartment more desirable.
c. It would make both choices less desirable.
d. It would make both choices more desirable.
e. It would have no effect on the decision; buying or not buying a car is a separate decision.
6. Which of the following is a true statement?
a. Fixed costs are always irrelevant.
b. Variable costs are always relevant.
c. Usually, variable costs are irrelevant.
d. Step costs may be relevant if an alternative requires moving outside the existing relevant range.
e. All of the above.