Chapter 2, Problem 56P

The Department of Natural Resources is responsible for maintaining the state’s parks and forest lands, stocking the lakes and rivers with fish, and generally overseeing the protection of the environment. Several costs incurred by the agency are listed below. For each cost, indicate which of the following classifications best describe the cost. More than one classification may apply to the same cost item.

Cost Classifications

1. a. Variable
2. b. Fixed
3. c. Controllable by the department director
4. d. Uncontrollable by the department director
5. e. Differential cost
6. f. Marginal cost
7. g. Opportunity cost
8. h. Sunk cost
9. i. Out-of-pocket cost
10. j. Direct cost of the agency
11. k. Indirect cost of the agency
12. l. Direct cost of providing a particular service
13. m. Indirect cost of providing a particular service

Cost Items

1. 1. Cost of the automobiles used by the department’s rangers. These cars were purchased by the state, and they would otherwise have been used by the state police.
2. 2. Cost of live-trapping and moving beaver that were creating a nuisance in recreational lakes.
3. 3. The department director’s salary.
4. 4. Cost of containing naturally caused forest fires, which are threatening private property.
5. 5. Cost of the fish purchased from private hatcheries, which are used to stock the state’s public waters.
6. 6. The difference between (a) the cost of purchasing fish from private hatcheries and (b) the cost of running a state hatchery.
7. 7. Cost of producing literature that describes the department’s role in environmental protection. This literature is mailed free, upon request, to schools, county governments, libraries, and private citizens.
8. 8. Cost of sending the department’s hydroengineers to inspect one additional dam for stability and safety.
9. 9. Cost of operating the state’s computer services department, a portion of which is allocated to the Department of Natural Resources.
10. 10. Cost of administrative supplies used in the agency’s head office.
11. 11. Cost of providing a toll-free number for the state’s residents to report environmental problems.
12. 12. The cost of replacing batteries in sophisticated monitoring equipment used to evaluate the effects of acid rain on the state’s lakes.
13. 13. Cost of a ranger’s wages, when the ranger is giving a talk about environmental protection to elementary school children.
14. 14. Cost of direct-mailing to 1 million state residents a brochure explaining the benefits of voluntarily recycling cans and bottles.
15. 15. The cost of producing a TV show to be aired on public television. The purpose of the show is to educate people on how to spot and properly dispose of hazardous waste.