Jason spends all afternoon baking a cake. When it comes out of the oven, it's burnt and sunk in the middle. Jason thinks about all the time he invested in making it and decides he'll spend more time frosting it and eat it anyway, even though it tastes pretty terrible. Jason's decision to continue to decorate and eat the cake is a good example of:
A. someone ignoring sunk costs.
B. someone weighing the opportunity costs of frosting and eating the cake and the benefits of doing so.
C. someone thinking marginally.
D. someone focusing on sunk costs.
Answer: D
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When firms in a perfectly competitive market are earning an economic profit, in the long run
A) no new firms will enter the market. B) new firms will enter the market. C) firms will exit the market. D) the long-run average cost curve shifts downward. E) the initial firms continue to earn an economic profit.
The problem of "asymmetric information" is that the
A) lender knows more than the borrower. B) borrower knows more than the lender. C) borrower and lender have different goals. D) borrower and lender know the future much less than they do the present.
Assume a country experiences heavy capital outflows. What is the first round effect on the value of the domestic currency?
a. The value of the currency rises. b. The value of the currency is unaffected. c. The value of the currency falls. d. The change in the value of the currency is ambiguous.
A monopolist maximizes profits by
a. producing an output level where marginal revenue equals marginal cost. b. charging a price equal to marginal revenue and marginal cost. c. charging a price where marginal cost equals average total cost. d. Both a and b are correct.