1. Opportunity cost is the cost of forgone opportunities, while sunk cost is a past expenditure that cannot be recovered. Based on this conceptual distinction, Is it "True" or "False".

a)If a firm buys a forklift for $10,000 and can resell it for the same price, it is not a sunk expenditure and the opportunity cost of the forklift is $10,000.

b)If instead the firm buys a specialized forklift for $10,000 and cannot resell it, then the original expenditure is a sunk cost.

c)If the specialized forklift that originally cost $10,000 can be resold for $4,000, then only $6,000 of the original expenditure is a sunk cost, and the opportunity cost is $4,000.

d)A sunk cost is not relevant to a firm's decision on how much to produce.

2. Fill the blank with "True" or "False"

a.It is impossible to have diminishing marginal return to a single factor (e.g. labor) and constant returns to scale at the same time.

b.External cost leads to an efficiency loss to society, but external benefit does not.

c.If all firms in an industry have identical variable cost, but each pays a different one-time fee to enter the market, all firms will produce identical quantities of output