Prelim Exam - Engineering Economics - Quiz, Flashcards & Trivia

1. Optimal volume (demand) occurs when total costs equal total revenues. Is it true or false?

True

False

False. Optimal volume (demand) occurs when marginal revenue equals marginal cost, not when total costs equal total revenues. Total costs and total revenues may not necessarily be equal at the optimal volume.

Explanation

False. Optimal volume (demand) occurs when marginal revenue equals marginal cost, not when total costs equal total revenues. Total costs and total revenues may not necessarily be equal at the optimal volume.

2. A nonrefundable cash outlay (e.g., money spent on a passport) is an example of an opportunity cost. Is it true or false?

True

False

A nonrefundable cash outlay is not an example of an opportunity cost. Opportunity cost refers to the value of the next best alternative that is foregone when making a decision. In this case, the cash outlay for a passport is a direct expense and does not represent the value of an alternative option that is being given up. Therefore, the statement is false.

Explanation

A nonrefundable cash outlay is not an example of an opportunity cost. Opportunity cost refers to the value of the next best alternative that is foregone when making a decision. In this case, the cash outlay for a passport is a direct expense and does not represent the value of an alternative option that is being given up. Therefore, the statement is false.

3. A related sunk cost will normally affect the prospective cash ﬂows associated with a situation. Is it true or false?

True

False

A related sunk cost will not normally affect the prospective cash flows associated with a situation. Sunk costs are costs that have already been incurred and cannot be recovered, therefore they should not be considered when making decisions about future cash flows. Prospective cash flows should only take into account future costs and benefits that are relevant to the decision at hand.

Explanation

A related sunk cost will not normally affect the prospective cash flows associated with a situation. Sunk costs are costs that have already been incurred and cannot be recovered, therefore they should not be considered when making decisions about future cash flows. Prospective cash flows should only take into account future costs and benefits that are relevant to the decision at hand.