Will,Bill,and Phil Decide to Study an Extra Hour for an Exam.Instead

question 42

Multiple Choice

Will,Bill,and Phil decide to study an extra hour for an exam.Instead of studying,they could have gone out to eat,played football,or watched TV.Which of the following statements is correct?

• A) The benefit the three students receive must be the same because they all make the same choice.
• B) The students made a rational choice as long as they face no scarcity.
• C) The students could each have different opportunity costs.
• D) The marginal cost of the decision is the same if they make the same score on the exam.
• E) Going out to eat, playing football, and watching TV are all called sunk costs.

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Definitions:

Passive Losses

Financial losses from activities in which the taxpayer does not materially participate, such as rental property.

Portfolio Income

Income from investments, including dividends, interest, and capital gains.

Material Participant

An individual who is actively involved on a regular, continuous, and substantial basis in the operations of a business, affecting their tax treatment of losses.

Form 6198

An IRS form used by taxpayers to determine the amount of loss from an at-risk activity that is deductible.