Alan Is Sitting in a Bar Drinking Beers That Cost

question 4

Multiple Choice

Alan is sitting in a bar drinking beers that cost $4 each. According to the economic decision rule, Alan will stop drinking when the marginal:

• A) benefit to him of an additional beer is less than $4.
• B) cost to him of an additional beer is less than the marginal benefit.
• C) cost remains at $4.
• D) benefit to him of an additional beer is greater than $4.

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Definitions:

Market Price

The current price at which an asset or service can be bought or sold.

Average Variable Cost

The variable cost of production divided by the quantity of output, representing the cost of labor and materials per unit of production.

Economic Profit

The difference between the total revenue generated by a business and the total costs, both explicit and implicit.

Total Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums, over a certain period of time.