Questions:
1. Accounting profits are typically
a. Greater than economic profits, as accounting profits do not include explicit costs
b. smaller than economic profits, as accounting profits do not include explicit costs
c. Greater than economic profits, as accounting profits do not include implicit costs
d. Equal to economic profits in the long-run
2. Which of the following equations is correct?
a. Economic profit = Accounting profit - explicit costs
b. Accounting profit = Total Revenue = (explicit costs + implicit costs)
c. Economic Profit = Accounting profit - implicit costs
d. Normal profit = Accounting profit + economic Profit
3. Suppose that the implicit cost for a business was $1,000 and the explicit cost was $5,000 and that the firm sold 1,000 units of its products at $5 per item. We can conclude that the firm's
a. Accounting profit was $5,000 and its economic profit was $0
b. Accounting and economic profit were both $0
c. Accounting profit was 0 and economic loss was $1,000
d. Accounting profit was $0 and economic profit was $1,000
4. An example of an implicit cost is
a. A payment to a resource owner
b. A business using a building owned by the owner of the business without paying any rent
c. The payment of interest on a bond
d. Payment of a salary to a CEO of a company
5. If the interest rate is 10%, and a business pays $100,000 for a lease on a factory, the explicit costs are
a. $10,000
b. $110,000
c. $100,000
d. $90,000
6. If the interest rate is 10%, and a business pays $100,000 for a lease on a factory, the implicit costs are
a. $10,000
b. $110,000
c. $90,000
d. $100,000
7. Accounting profits are
a. Total revenue minus normal costs
b. Total revenue minus explicit and implicit costs
c. Total revenue minus explicit costs
d. Total revenue minus implicit costs
8. Owner provided capital or owner provided labor are examples of
a. Implicit costs
b. Accounting costs
c. Explicit costs
d. Normal rate of return
9. Economic profits are
a. Total revenue minus explicit costs
b. Total revenue minus explicit and implicit costs
c. Total revenue minus implicit costs
d. Total revenue minus accounting costs
10. For an economists the short-run means a time period
a. That does not allow the firm to change its plant size
b. That prohibits firms to change the amount of imported resources it uses
c. That prohibits new firms from entering the industry
d. That s between one and five years
11. When E1 Torito is deciding how many waiters to hire for a holiday weekend it is making a _________ decision
a. Long run
b. Fixed input
c. Short run
d. Plant size
12. If a firm can vary all of the factors of production it is operating in
a. The long run
b. The short run
c. Equilibrium
d. The immediate run
13. Which of the following is a long-run adjustment?
a. A company hires ten new management trainees
b. A restaurant hires a new chef
c. A company builds a new manufacturing plant
d. A bank hires a new CEO
14. The change in output caused by a one-unit change in labor is refered to as the
a. Average physical product
b. Total physical product
c. Marginal physical product
d. Compounded physical product
15. Phil found that as he continued to crowd laborers into his hot dog stand that the extra output he was receiving from each additional laborer was beginning to fall off. This is an example of the
a. Law of diminishing marginal utility
b. Law of diminishing returns
c. Law of increasing opportunities
d. Law of demand
16. In the short run total costs
a. Equal to the sum of total fixed costs and total explicit costs
b. Equal the sum of total fixed costs and total variable costs
c. Equal to the sum of total fixed costs and total implicit costs
d. Equal to the sum of total variable costs and total implicit costs
17. As long as output increases
a. Average variable costs will decrease
b. Average total costs will decrease
c. Average fixed costs decrease
d. Marginal costs will decrease
Total Output Total Costs
0 10
1 18
2 21
3 23
4 24
5 26
6 29
7 33
8 38
9 44
10 51
18. Using Table 22.4. we see that when output is 4 units that average total cost equals
a. 6.0
b. 24
c. 3.5
d. 14
19. In Table 22.4, total fixed costs are
a. 8
b. 5
c. 18
d. 10
20. In table 22.4, when output is 8 units average variable costs are
a. 1.25
b. 4.5
c. 3.5
d. 4.75
21. Total costs divided by the quantity of production is referred to as
a. Marginal costs
b. Average total costs
c. Average fixed costs
d. Average variable costs
22. The marginal cost curve always intersects the average total cost cusrve at the point where the average total cost curve where it
a. Has a vertical slope
b. Is at its maximum
c. Is zero
d. Is at its minimum
23. The typical cost curves are "U" shaped due to the
a. Law of Diminishing Marginal Utility
b. Law of Demand
c. Law of Supply
d. Law of Diminishing Marginal Returns
24. The long run for a business is a period of time
a. When most inputs are variable
b. When labor is the only input used by the business
c. Longer than a year
d. When all inputs are variable
25. If a firm gets so large that management of employees and other resources becomes a costly problem, it will be experiencing
a. Diseconomies of scale
b. Economies of scale
c. Constant returns to scale
d. Diminishing marginal returns
26. A firm doubles its output in the long-run and at the same time the unit cost of production remains unchanged. We can conclude that the firm is
a. Exploiting the economies of scale available to it
b. Not using the available technology efficiently
c. Facing diseconomies of scale
d. Facing constant returns to scale
27. The lowest rate of output per unit at which long-run average cost for a firm are at a minimum defines
a. Allowable efficient scale
b. Maximum efficient scale
c. Minimum efficient scale
d. Short-run efficient scale
28. Your local farmer has many competitors, and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmers ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is
A. Always able to price produce above the competition and earn a larger profit
B. A price maker and can therefore charge different customers different prices
C. Never able to determine any prices it charges for anything, such as soybeans
D. A price taker and cannot affect the price of the produce sold to a great degree
29. All of the following are characteristics of a perfectly competitive market EXCEPT
a. Buyers and seller have equal access to information
b. Large number of buyers and sellers
c. High barriers to entry and exit
d. Homogeneous product
30. Which of the following is closet to a perfectly competitive market?
a. Broccoli
b. Handmade guitars
c. Computer software
d. Tennis shoes
31. The demand curve facing the perfectly competitive firm is
a. Perfectly inelastic
b. Uplsloping
c. Perfectly elastic
d. Downsloping
32. The demand curve for a perfectly competitive industry is
a. Perfectly inelastic
b. Perfectly elastic
c. Downward sloping
d. Unit elastic
33. For the perfectly competitive firm the sale price
a. Depends on the fixed cost for the form
b. Equals average total cost
c. Changes as output changes
d. Equals average revenue
34. Which of the following is true for the perfectly competitive firm
a. Price and MR are always equal
b. Price elasticity of demand is equal to 1
c. AR is more than price
d. AR is less than price
35. The goal of ther perfectly competitive firm is to
a. Minimize ATC
b. Minimize AFC
c. Maximize total profits
d. Maximize total revenue
36. Profit maximizing output for the perfectly competitive firm is where
a. TR -ATC = maximum
b. TR - MR = maximum
c. MR = MC
d. TR - TC = maximum