Practice/Sample Quiz Questions – Module 2
Many of our colleagues stated that they would have benefited from additional practice with
the formulas/analytical problems prior to their first attempt at the quiz.
So, here are some problems of the form that make up the quizzes. Caution – these problems
were chosen at random and their inclusion DOES NOT necessarily mean the same topics will be
on your quiz.
Question 1-5 are from chapter 4, 6-10 from chapter 5, 11-15 from chapter 19 and 16-20 are
from chapter 20.
Question 1
A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an
hourly wage of $15. Raw materials are ordered weekly and they cost $10 for every unit
produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall
costs breakdown?
a. total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250
b. total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250
c. total variable cost is $5,000; total fixed cost is $14,250; total cost is $19.250
d. total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250
Question 2
If a firm produces 8 units of output with average fixed cost=$40 and average variable
cost=$25, what is its total cost?
a. $200
b. $1,000
c. $520
d. $320
Question 3
Comfy Clothing is thinking of hiring Tom. If hired, he can increase total production by 100
units a week. He would cost the firm $1,500 a week in wages. If the price of each unit is $20,
a. The MR of hiring the worker is $2,000
b. The MC of hiring Tom is $1,500
c. The firm should hire Tom since MR>MC
d. All the above
Question 4
Farmer John can produce as much corn as he wants at the going price of $48 per bushel. At his
current production level, the marginal cost is $18. What should the company do?
a. Increase production
b. Decrease production
c. Stay at this level of production
d. None of the above
Question 5
Food Fanatics caters meals where their cost of producing an extra meal is $25. Each of their
meals is standard and sells for $20. At this rate what should the company do?
a. Produce more meals and increase their profit
b. Produce fewer meals and increase their profit
c. Not change production
d. None of the above
Question 6
A publisher is deciding whether or not to invest in a new printer. The printer would cost $500,
and it would increase cash flows by $600 for the next two years. What is the present value of
the cash flows from the investment?
a. $1100
b. $541
c. $600
d. $1041
Question 7
Lucy invested $10,000 at the rate of 12%. According to the rule of 72, it would take ______
years for her money to double
a. 4
b. 5
c. 6
d. 7
Question 8
The break-even quantity is
a. Fixed Costs/Price
b. Fixed Costs/Marginal Cost
c. Fixed Costs/(Price – Marginal Costs)
d. Contribution Margin/Fixed Costs
Question 9
A pottery craftsman is debating attending the crafters fair. It costs $50 to set up the booth
and $20 in transportation to get his pottery to the fair. He nets $5 for each of his pieces,
number of pots he must sell to make going to the fair worth the cost?
a. 10
b. 12
c. 14
d. 16
Question 10
A firm’s sunk costs are $100,000 and its marginal costs are $250 per unit. It produces
500,000 units and prices it at $400 per unit., How low can price go before the firm decides to
shut down?
a. $150
b. $250
c. $250.20
d. $400
Question 11
A risk averse individual
a. values a lottery at more than its expected value
b. values a lottery at exactly its expected value
c. values a lottery at less than its expected value
d. tends to play lots of lotteries
Question 12
The following is not an example of risk aversion
a. you lock your garage when you have expensive workshop tools
b. you are more careful when you buy a more expensive car
c. Individuals tend to gamble more with their money when the future is uncertain
d. you only go swimming when the lifeguard is on duty
Question 13
Which firm is not dealing with adverse selection
a. a manufacturer requires a 90 day probationary period for new employees
b. a temporary clerical agency requires a typing test
c. a manufacturer requires suppliers to be ISO 9000 certified
d. Smokers get the same life insurance rates as non-smokers
Question 14
Scatterbrain Samantha often forgets to lock her house. This has caused the probability of a
burglary to be 30%. If her house gets broken into, she faces a property loss of $10,000,
otherwise she gets to keep her $100,000. What is her expected wealth?
a. 80,000
b. $87,000
c. $97,000
d. $99,000
Question 15
A firm hiring only USI MBAs, regardless of the self-professed skill set is an example of
a. Screening mechanism
b. Signaling mechanism
c. Way to waste money
d. None of the above
Question 16
You offer an extended warranty for your product that is purchased by a few customers. If the
product typically fails 2% of the time,
a. you should price the warranty at less than 2% of the product price
b. you should price the warranty at exactly 2% of the product price
c. you should price the warranty at more than 2% of the product price
d. Cannot tell from this information
Question 17
An example of moral hazard is
a. A taxi driver paid per mile taking the shortest route
b. a piece-rate garment worker shirking less than a per hour worker
c. an hourly salesman working harder than a commission salesman
d. an author on contract going to as many book signings as one with a percentage royalty
rate
Question 18
The Department of Education noticed that for loans granted to students without any strings,
the average grade point average of the students decreases dramatically over time, while the
students whose loans renew only if they pass their courses tends to stay stable. This could be
due to a
a. Adverse selection problem
b. Moral hazard problem
c. Typical college life phenomenon
d. None of the above
Question 19
A shoe salesman working on commission must decide whether to work hard or shirk. Working
hard would increase the probability of a sale from 20% to 70% but the effort would cost him
$5. If the commission on a typical pair of shoes was $12, would he decide to work hard?
a. Yes because it is higher than what it costs him in effort
b. Yes because it is higher than zero
c. No, because it costs him more in effort
d. None of the above
Question 20
Smart Samantha can make a $200 investment that yields $1000 50% of the time and $0
50% of the time. What is his expected return on the investment?
a. $200
b. $300
c. $400
d. $500
Answer Key
1. A
2. C
3. D
4. A
5. B
6. A
7. C
8. C
9. C
10. B
11. C
12. C
13. D
14. C
15. A
16. C
17. B
18. B
19. A
20. B