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RMI 2302 Chapter 4 Questions and Answers
(Expert Solutions)
Q: Which of the following needs to be recognized in the cost / benefit method of decision
making ?
A. opportunity cost
B. sunk costs
C. marginal costs / benefit
D. all of the above
E. none of the above
ANS 🗹🗹: All of the above
Q: The claim that decisions are made to maximize expected utility rather than expected
monetary value is the major component of which of the following ?
A. Utility theory
B. Expectation theory
C. Uncertainty theory
D. Maximization theory
ANS 🗹🗹: Utility theory
Q: Sharon is given two options . Option 1 allows her to take $ 5 . Option 2 allows her a
1/3 chance of winning $ 50 , but she risks losing $ 10 , 2/3 of the time . Sharon chooses
option 1. What best describes Sharon ?
A. risk - seeing
B. risk - averse
C. risk - neutral
D. gambling - averse
ANS 🗹🗹: Risk-averse
Q: The increase in total benefit that results from carrying out one additional unit of an
activity is the
A. marginal benefit
B. additional benefit
C. cost - decision margin
D. revenue margin
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ANS 🗹🗹: Marginal benefit
Q: Marginal Cost and Benefit calculations :
I. Measure activity incrementally
II . Are useful in determining the level at which activity stops
III . Are sometimes referred to as average cost and benefits
A. I
B. II
C. III and II
D. I , II , III
E. None are true
ANS 🗹🗹: I and II
Q: Opportunity cost is best defined as
A. the understanding that making an error contains an inherent cost
B. the understanding that one must risk to receive a reward
C. the value of all that must be sacrificed in order to benefit .
D. the considerable evidence needed to make a decision
ANS 🗹🗹: the value of all that must be sacrificed in order to benefit .
Q: Which of the following describes the decision - maker classifications for individuals
under utility theory ?
A. certain , uncertain and indifferent
B. risk - averse , risk - seeking and risk - neutral
C. individual , corporate and governmental
D. None of the above .
ANS 🗹🗹: risk - averse , risk - seeking and risk - neutral
Q: An incurred cost that cannot be recovered , which is irrelevant for all decisions about
the future , is included in the projected cost of a project . This an example of :
A. Ignoring implicit costs
B. Failing to ignore sunk costs
C. Considering opportunity cost
D. Conservative economic theroy
ANS 🗹🗹: Failing to ignore sunk costs
Q: The following statement ( s ) regarding Utility Functions is / are true :
I. Utility Functions are usually a function of wages .
II . Utility increases at a decreasing rate .
RMI 2302 Chapter 4 Questions and Answers
(Expert Solutions)
Q: Which of the following needs to be recognized in the cost / benefit method of decision
making ?
A. opportunity cost
B. sunk costs
C. marginal costs / benefit
D. all of the above
E. none of the above
ANS 🗹🗹: All of the above
Q: The claim that decisions are made to maximize expected utility rather than expected
monetary value is the major component of which of the following ?
A. Utility theory
B. Expectation theory
C. Uncertainty theory
D. Maximization theory
ANS 🗹🗹: Utility theory
Q: Sharon is given two options . Option 1 allows her to take $ 5 . Option 2 allows her a
1/3 chance of winning $ 50 , but she risks losing $ 10 , 2/3 of the time . Sharon chooses
option 1. What best describes Sharon ?
A. risk - seeing
B. risk - averse
C. risk - neutral
D. gambling - averse
ANS 🗹🗹: Risk-averse
Q: The increase in total benefit that results from carrying out one additional unit of an
activity is the
A. marginal benefit
B. additional benefit
C. cost - decision margin
D. revenue margin
, Page | 2
ANS 🗹🗹: Marginal benefit
Q: Marginal Cost and Benefit calculations :
I. Measure activity incrementally
II . Are useful in determining the level at which activity stops
III . Are sometimes referred to as average cost and benefits
A. I
B. II
C. III and II
D. I , II , III
E. None are true
ANS 🗹🗹: I and II
Q: Opportunity cost is best defined as
A. the understanding that making an error contains an inherent cost
B. the understanding that one must risk to receive a reward
C. the value of all that must be sacrificed in order to benefit .
D. the considerable evidence needed to make a decision
ANS 🗹🗹: the value of all that must be sacrificed in order to benefit .
Q: Which of the following describes the decision - maker classifications for individuals
under utility theory ?
A. certain , uncertain and indifferent
B. risk - averse , risk - seeking and risk - neutral
C. individual , corporate and governmental
D. None of the above .
ANS 🗹🗹: risk - averse , risk - seeking and risk - neutral
Q: An incurred cost that cannot be recovered , which is irrelevant for all decisions about
the future , is included in the projected cost of a project . This an example of :
A. Ignoring implicit costs
B. Failing to ignore sunk costs
C. Considering opportunity cost
D. Conservative economic theroy
ANS 🗹🗹: Failing to ignore sunk costs
Q: The following statement ( s ) regarding Utility Functions is / are true :
I. Utility Functions are usually a function of wages .
II . Utility increases at a decreasing rate .
