RMI 2302 LATEST 2026 PRACTICE EXAM QUESTIONS
AND SOLUTIONS GUARANTEE A+
✔✔Opportunity cost is best defined as - ✔✔the value of all that must be sacrificed in
order to benefit
✔✔Marginal Cost and Benefit calculations:
Measure activity incrementally
Are useful in determining the level at which activity stops
Are sometimes referred to as average cost and benefits - ✔✔Measure activity
incrementally and are useful in determining the level at which activity stops
✔✔All the following statements about the Utility Function are true except: - ✔✔the Utility
Function reflects objective attitudes about risk
✔✔Utility functions are normally a function of _____________. Choose which of the
following best fits in the blank. - ✔✔wealth
✔✔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: - ✔✔Failing
to ignore sunk costs
✔✔The Utility Index proposed by Von Neumann and Morgenstern:
I. is designed for predictive purposes
II. enables decision making based on preferences
III. measures utility in situations where risk exists - ✔✔is designed for predictive
purposes, enables decision making based on preferences, and measures utility in
situations where risk exists
✔✔Which of the following correctly identifies the cost-benefit approach to decision-
making? - ✔✔If the benefit of undertaking an activity exceeds its cost, undertake that
activity
✔✔An investor owns a hostel business and has $10,000 left over after the year (initial
wealth = 10,000). He has the choice of not investing the money or purchasing additional
property for the full amount of his wealth, $10,000, for his hostel. There is a 50%
probability he will make $5,000 (total of $15,000) and a 50% probability he will lose
$3,000 ($7000 left) if he chooses to invest in the new property. Assuming he has a
square root utility function, what should he do? - ✔✔Invest the money
✔✔The owner of a private language school has a profit of $50,000 for the year. She has
the option of saving the $50,000 for future opportunities or investing all of this amount in
a new classroom facility. The investment has a 50% probability of gaining $20,000 and
, a 50% probability of losing $35,000. ($15,000 left) If she has a square root utility
function, what should the school do? - ✔✔Save for future opportunities.
✔✔A girl is given $15 by her parents. She has two options of how to spend the money.
She can either save the money for future purchases or she can start a lemonade stand
on her driveway. If she spends all of her $15 on the lemonade stand, there is a 50%
probability she will lose $10 ($5 left) and a 50% probability she will profit $12 beyond
her initial investment (a total of $27). Assuming the girl has a square root utility function,
what should the girl do with the money? - ✔✔Save her money.
✔✔In 1941 households paid approximately 3% of their income in federal income taxes.
In the 2000's, this percentage has grown to almost: - ✔✔15%
✔✔Owners of an organization want to maximize company profits and stock prices while
agents (managers) want high pay, regardless of company performance. This is referred
to as: - ✔✔the principal-agent problem
✔✔The government stabilizes the economy by balancing:
unemployment
inflation - ✔✔unemployment and inflation
✔✔Limited liability AND ease of expansion are advantages to which of the following? -
✔✔Corporations
✔✔Molly goes to the grocery store and spends $75 on food. According to chapter 5,
which of the following describes her purchase? - ✔✔Non-durable good
✔✔Production Costs inflicted upon a third party are negative externalities. These can be
corrected by:
Enacting legislation or regulation
Targeting specific products for taxation - ✔✔Both can be used
✔✔According to Mill, the goal of moral and political action should be to maximize
people's: - ✔✔Happiness
✔✔Redistributing Income, providing a structure and promoting stability are -
✔✔Government roles
✔✔The sum of all taxes withheld from wages and salary is known as the
_______________? - ✔✔Tax wedge
✔✔Which of the following is the most popular ownership structure within the U.S.? -
✔✔Sole proprietorship
AND SOLUTIONS GUARANTEE A+
✔✔Opportunity cost is best defined as - ✔✔the value of all that must be sacrificed in
order to benefit
✔✔Marginal Cost and Benefit calculations:
Measure activity incrementally
Are useful in determining the level at which activity stops
Are sometimes referred to as average cost and benefits - ✔✔Measure activity
incrementally and are useful in determining the level at which activity stops
✔✔All the following statements about the Utility Function are true except: - ✔✔the Utility
Function reflects objective attitudes about risk
✔✔Utility functions are normally a function of _____________. Choose which of the
following best fits in the blank. - ✔✔wealth
✔✔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: - ✔✔Failing
to ignore sunk costs
✔✔The Utility Index proposed by Von Neumann and Morgenstern:
I. is designed for predictive purposes
II. enables decision making based on preferences
III. measures utility in situations where risk exists - ✔✔is designed for predictive
purposes, enables decision making based on preferences, and measures utility in
situations where risk exists
✔✔Which of the following correctly identifies the cost-benefit approach to decision-
making? - ✔✔If the benefit of undertaking an activity exceeds its cost, undertake that
activity
✔✔An investor owns a hostel business and has $10,000 left over after the year (initial
wealth = 10,000). He has the choice of not investing the money or purchasing additional
property for the full amount of his wealth, $10,000, for his hostel. There is a 50%
probability he will make $5,000 (total of $15,000) and a 50% probability he will lose
$3,000 ($7000 left) if he chooses to invest in the new property. Assuming he has a
square root utility function, what should he do? - ✔✔Invest the money
✔✔The owner of a private language school has a profit of $50,000 for the year. She has
the option of saving the $50,000 for future opportunities or investing all of this amount in
a new classroom facility. The investment has a 50% probability of gaining $20,000 and
, a 50% probability of losing $35,000. ($15,000 left) If she has a square root utility
function, what should the school do? - ✔✔Save for future opportunities.
✔✔A girl is given $15 by her parents. She has two options of how to spend the money.
She can either save the money for future purchases or she can start a lemonade stand
on her driveway. If she spends all of her $15 on the lemonade stand, there is a 50%
probability she will lose $10 ($5 left) and a 50% probability she will profit $12 beyond
her initial investment (a total of $27). Assuming the girl has a square root utility function,
what should the girl do with the money? - ✔✔Save her money.
✔✔In 1941 households paid approximately 3% of their income in federal income taxes.
In the 2000's, this percentage has grown to almost: - ✔✔15%
✔✔Owners of an organization want to maximize company profits and stock prices while
agents (managers) want high pay, regardless of company performance. This is referred
to as: - ✔✔the principal-agent problem
✔✔The government stabilizes the economy by balancing:
unemployment
inflation - ✔✔unemployment and inflation
✔✔Limited liability AND ease of expansion are advantages to which of the following? -
✔✔Corporations
✔✔Molly goes to the grocery store and spends $75 on food. According to chapter 5,
which of the following describes her purchase? - ✔✔Non-durable good
✔✔Production Costs inflicted upon a third party are negative externalities. These can be
corrected by:
Enacting legislation or regulation
Targeting specific products for taxation - ✔✔Both can be used
✔✔According to Mill, the goal of moral and political action should be to maximize
people's: - ✔✔Happiness
✔✔Redistributing Income, providing a structure and promoting stability are -
✔✔Government roles
✔✔The sum of all taxes withheld from wages and salary is known as the
_______________? - ✔✔Tax wedge
✔✔Which of the following is the most popular ownership structure within the U.S.? -
✔✔Sole proprietorship
