These are original Marlbridge practice questions, not past exam questions. The mark points are a suggested Marlbridge rubric to help you check your work; they are not an official scoring guideline. All people, firms, places and data are fictional. Only addition, subtraction and multiplication are needed, so a four-function calculator is enough. All values are in dollars unless a question says otherwise.
Question 1 (multiple choice · foundation)
Omar has one free evening. He can work a shop shift that pays $60, go to a concert he values at $45, or join a study session he values at $50. He chooses the shop shift. What is the opportunity cost of his choice?
- (A) $45
- (B) $50
- (C) $60
- (D) $95
Answer and explanation
Answer: (B). The opportunity cost is the value of the next-best alternative. Of the options he rejected, the study session ($50) is worth more than the concert ($45).
- (A) uses the least valuable rejected option, not the next-best one.
- (C) is the benefit of the option he chose, not what he gave up.
- (D) adds both rejected options (45 + 50). Omar could only have done one of them, so he gives up only the best of them.
Question 2 (multiple choice · core)
Pella runs a café in a building she owns. She borrowed money from a bank to buy her coffee machines. Which of the following is an implicit cost of running the café?
- (A) The wages she pays her two baristas
- (B) The rent she could earn by letting the building to another business
- (C) The monthly electricity bill
- (D) The interest she pays on the bank loan
Answer and explanation
Answer: (B). Pella pays no rent, because she owns the building. But by using it herself she gives up the rent she could have earned. That forgone income is an implicit cost.
- (A) is a money payment to workers: an explicit cost.
- (C) is a money payment to the power company: an explicit cost.
- (D) is a money payment to the bank: an explicit cost. Borrowing does not make a cost implicit; paying someone else makes it explicit.
Question 3 (multiple choice · core)
A sports club decides how many coaching sessions to run each week. Its total benefit and total cost are shown below.
| Sessions per week | 0 | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|---|
| Total benefit ($) | 0 | 200 | 360 | 480 | 560 | 600 |
| Total cost ($) | 0 | 90 | 180 | 270 | 360 | 450 |
How many sessions should the club run?
- (A) 1
- (B) 3
- (C) 4
- (D) 5
Answer and explanation
Answer: (B). Net benefit for 0 to 5 sessions is 0, 110, 180, 210, 200 and 150. The largest is $210, at 3 sessions.
- (A) gives the largest net benefit per session ($110), but the club cares about its total net benefit, which is only $110 here.
- (C) goes one session too far. The 4th session adds $80 of benefit (560 − 480) but $90 of cost, so net benefit falls from $210 to $200.
- (D) gives the largest total benefit ($600), but net benefit is only $150.
Question 4 (calculation · core)
Tomas owns a van. A firm offers him a one-off, 5-day contract to move furniture for a payment of $2,000. To do the job he must buy $380 of fuel, pay $70 in road tolls and hire a helper for $500. He would also have to stop his regular deliveries for those 5 days; these would have earned him $1,300 after their own costs.
(a) Calculate Tomas’s explicit costs and his implicit cost. (b) Calculate the net benefit of accepting the contract, and state whether he should accept it. (c) What is the lowest payment that would make Tomas willing to accept?
Worked solution
(a) Explicit costs = 380 + 70 + 500 = $950. Implicit cost = the delivery earnings he gives up = $1,300.
(b) Total economic cost = 950 + 1,300 = $2,250. Net benefit = 2,000 − 2,250 = −$250. He should turn the contract down and keep his regular deliveries.
(c) He needs the payment to cover his total economic cost: $2,250. At exactly $2,250 he is indifferent; any higher payment gives a positive net benefit.
Suggested mark points (3): 1 for $950 explicit and $1,300 implicit; 1 for −$250 with the correct decision; 1 for $2,250.
Common error: subtracting only the explicit costs (2,000 − 950 = $1,050) and accepting. That ignores the income Tomas gives up.
Question 5 (graph · core)
A town council is choosing how many kilometres of new cycle lane to build. Values are in thousands of dollars per year.
| Kilometres | 0 | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|---|
| Total benefit | 0 | 400 | 700 | 900 | 1,000 | 1,050 |
| Total cost | 0 | 150 | 320 | 510 | 720 | 950 |
(a) On one graph, draw and label the total benefit and total cost curves. (b) Identify on your graph the length that maximises net benefit, and state that net benefit. (c) A councillor says: “We should build 5 km, because that gives the town the most benefit.” Evaluate this claim.
Model answer and suggested Marlbridge rubric
(a) Horizontal axis: “Kilometres of cycle lane”. Vertical axis: “Thousand dollars per year”. Plot both rows and join each set of points. Total benefit rises steeply at first and then flattens. Total cost rises more and more steeply. Label the curves TB and TC.
(b) Net benefit for 0 to 5 km is 0, 250, 380, 390, 280 and 100 (thousand dollars). The largest gap between TB and TC is at 3 km, where net benefit is $390 thousand per year. Show it as a vertical distance between the curves at 3 km.
(c) The councillor is wrong. Total benefit is indeed largest at 5 km ($1,050 thousand), but total cost is $950 thousand, so net benefit is only $100 thousand. The 4th and 5th kilometres each add less benefit than cost (4th: +100 benefit, +210 cost; 5th: +50 benefit, +230 cost). The council should choose the length with the largest net benefit: 3 km.
| Point | What earns it |
|---|---|
| 1 | Both axes labelled; TB and TC plotted from the table and labelled |
| 1 | 3 km identified as the largest vertical gap, with net benefit $390 thousand |
| 1 | States that the claim confuses total benefit with net benefit, using the net benefit at 5 km ($100 thousand) |
| 1 | Supports the evaluation with a marginal comparison or a comparison of net benefits |
Accept either curve shape that passes through the table values. Do not award the second point for “where TB is highest”.
Question 6 (constructed response · core)
(a) For each decision, state whether it can be taken in marginal steps or must be judged on totals only, and give a reason.
- (i) A city decides whether to build a footbridge across a river.
- (ii) A café decides how many staff hours to schedule on Saturdays.
- (iii) A farmer decides how many kilograms of fertiliser to apply to a field.
(b) The footbridge would give total benefits of $8.4 million. Building it would cost $6.0 million. The city already owns the land the bridge would use, and could instead sell that land for $1.5 million. Should the city build the bridge? Show your working.
Model answer and suggested Marlbridge rubric
(a)
- (i) Totals only. A bridge is all or nothing: half a bridge gives no benefit, so there are no meaningful steps.
- (ii) Marginal steps. The café can add one hour at a time and compare the extra benefit of each hour with its extra cost.
- (iii) Marginal steps. The farmer can add fertiliser a kilogram at a time and compare the extra crop value with the extra cost.
(b) Explicit cost = $6.0 million. Implicit cost = the land sale price given up = $1.5 million. Total economic cost = 6.0 + 1.5 = $7.5 million. Net benefit = 8.4 − 7.5 = +$0.9 million, so the city should build the bridge.
| Point | What earns it |
|---|---|
| 1 | All three classifications correct |
| 1 | Reason for (i) refers to the decision being indivisible (all or nothing) |
| 1 | Includes the $1.5 million land value as an implicit (opportunity) cost |
| 1 | Net benefit of +$0.9 million and the decision to build |
Do not award the third point if the land is left out because “the city already owns it”. Using the land gives up $1.5 million.
Question 7 (explanation · stretch)
Kalinda can run pottery classes in her own studio at $120 per class. Her explicit costs (clay, kiln power and an assistant) depend on how many classes she runs:
| Classes per week | 0 | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|---|
| Total explicit cost ($) | 0 | 50 | 110 | 190 | 290 | 420 |
If she runs any classes, she must give up a part-time job that pays $150 per week.
(a) If she opens, how many classes should she run? Show your working. (b) Including the job she gives up, should she open the studio at all? (c) The job’s pay rises to $220 per week. Explain what happens to your answers to (a) and (b).
Model answer and suggested Marlbridge rubric
(a) Total revenue for 0 to 5 classes is 0, 120, 240, 360, 480 and 600. Revenue minus explicit cost is 0, 70, 130, 170, 190 and 180. If she opens, she should run 4 classes. Marginal check: the 4th class adds $120 and costs $100 (run it); the 5th adds $120 but costs $130 (do not).
(b) The $150 job is an implicit cost of opening. At 4 classes, net benefit = 190 − 150 = +$40, which beats the $0 she gets from not opening (she keeps the job). She should open and run 4 classes.
(c) The implicit cost is now $220, but it is the same whether she runs 1 class or 5. Subtracting the same amount from every option does not change which one is largest, so 4 classes is still the best number if she opens. But net benefit at 4 classes is now 190 − 220 = −$30, worse than not opening. She should not open; she should take the job. The job’s pay affects the all-or-nothing choice (whether to open) but not the “how much” choice (how many classes). She opens only if the job pays less than $190.
| Point | What earns it |
|---|---|
| 1 | 4 classes, from net values or a marginal comparison |
| 1 | Treats the $150 job as an implicit cost and finds +$40, so open |
| 1 | Net benefit −$30 at $220, so do not open |
| 1 | Explains that a cost that is the same for every number of classes does not change the best quantity |
How did you do?
- Q1 or Q2 wrong: re-read “Opportunity cost: the next-best alternative” and “Explicit and implicit costs” in the study guide.
- Q3 or Q5 wrong: re-read “Total benefit, total cost and net benefit”, Figure 1 and Worked example 2. Compare net benefits.
- Q4 or Q6(b) wrong: re-read Worked example 1. List every implicit cost before you subtract.
- Q6(a) or Q7 incomplete: re-read “Two kinds of decision”.
Then tick off the topic checklist.