Lesson 10: Organizing Production

An electrician quits her current job, which pays $40,000 per year. She can take a job with another firm for $45,000 per year or work for herself. The opportunity cost of working for herself is __________. $5,000 $40,000 $45,000 $85,000

$45,000

Which of the following is a correct statement? - Economic efficiency occurs when a firm cannot increase production without using more resources. - Technological efficiency depends on the costs of resources while economic efficiency depends only on feasible production methods. - Technological efficiency depends only on feasible production methods, while economic efficiency depends on the costs of resources. - All of the above are correct.

- Technological efficiency depends only on feasible production methods, while economic efficiency depends on the costs of resources.

Which of the following best defines "economies of scope"?

Because firms use specialized resources to produce a range of goods, as the number of products produced increases, the cost of producing a unit decreases.

which of the statements about the relationship between technological efficiency and economic efficiency is incorrect? A. A technologically inefficient method of production is never economically efficient. B. Economic efficiency requires technological efficiency C. All technologically efficient methods of production are also economically efficient. D. None of the above is correct, because all the answers are correct statements about the relationship between technological and economic efficiency.

C. Correct. If a production method is technologically efficient, then the maximum possible amount of output that can be produced is being produced using those inputs. However, there may still be a cheaper way to produce that output. Hence, while economic efficiency requires technological efficiency, technological efficiency is not enough to guarantee economic efficiency.

Which of the following is a reason why firms can be more efficient than markets as coordinators of economic activity? Firms have economies of scale and scope. Firms have higher transactions charges. Firms can eliminate the principal-agent problem. All of the above are correct.

Firms have economies of scale and scope.

On a national level, the concentration ratio for grocery stores is very low. But the "true" market for grocery stores is local in nature. What limitation does the geographic market put on the measure of concentration for grocery stores?

On the local level, grocery stores are more concentrated than they appear on the national level.

An institution that hires productive resources and organizes them to produce and sell goods and services is called __________. a cooperative an industry a firm a factory

a firm

The former President of Jitters Coffee Company, Inc., has been running his own company since resigning his $100,000 a year job at Jitters one year ago. Jitters would rehire him at any time. His accountant measures a profit of $88,000 from self-employment after one year, so __________. a. he had an economic loss of $12,000 in his first year b. he has an implicit rental rate of $12,000 in his first year c. he has made an economic profit of $100,000 in his first year d. he has suffered an economic loss of $100,000 in his first year

a.

Which of the following compensation schemes can be explained as an attempt to solve a principal-agent problem?

a. Real estate agents are paid on a strict commission basis; if they don't sell a client's listed property, they don't get paid. b. Personal injury lawyers often work on a contingency basis. If the lawyer wins the case, they receive a significant share of the award; if the lawyer doesn't win the case, the lawyer doesn't get paid. c.Traveling salespeople, who are costly and difficult to monitor, generally receive a significant share of their compensation in the form of commissions or bonuses for meeting sales targets. all of these are examples

A normal profit is best described as

an implicit cost that is the average return for entrepreneurship

Pippi owns a pizza parlor. If Pippi owns a pizza oven, for its use she incurs . If she rents a pizza oven, for its use she incurs __________. an implicit cost; an explicit cost an explicit cost; an implicit cost implicit cost; depreciation depreciation; an implicit cost

an implicit cost; an explicit cost

Costs as measured by accountants generally do not include __________. any opportunity costs of the firm any depreciation any implicit rental rates any explicit rental rates

any implicit rental rates

A firm pays its workers $10 per hour. This cost is an example of an __________ a. opportunity cost b. implicit cost c. explicit cost d. both a and c

both a and c

The largest share of the U.S. private economy is __________. in manufacturing competitive or monopolistically competitive oligopolistic monopolistic

competitive or monopolistically competitive

In part, the principal-agent problem is to __________. find ways for managers to get people to buy stock in their company devise compensation rules to induce principals to act in the best interest of agents devise compensation rules to induce agents to act in the best interest of principals find efficient agents who will negotiate fair compensation rules for a firm's principal managers

devise compensation rules to induce agents to act in the best interest of principals

principle agent problem best explianed as

devising incentives that encourage employees to act on the owners behalf

Which of the following are two components of the opportunity cost of using capital already owned by the firm? implicit costs and normal costs implicit rental rate and economic profit explicit rental rate and economic costs economic depreciation and forgone interest

economic depreciation and forgone interest

A company needs to know the price of each resource it employs if it wants to determine whether or not it is achieving __________. technological efficiency economic efficiency accounting efficiency managerial efficiency

economic efficiency

the difference between economic profit and what an accountant measures as profit is that

economic profits include implicit costs and accounting profits do not

If a firm that repairs both motorcycles and cars is able to do so at a lower cost than a firm that repairs only one or the other, this would be an example of __________. economies of scope economies of scale monitoring increasing transactions costs

economies of scope

Opportunity costs differ from the costs measured by an accountant because opportunity costs includes all __________. profits implicit costs conventional depreciation economic profit

implicit costs

A firm that is technologically efficient __________. must be economically efficient, but a firm that is economically efficient is not always technologically efficient must be economically efficient, and a firm that is economically efficient must always be technologically efficient is not always economically efficient, and a firm that is economically efficient is not always technologically efficient is not always economically efficient, but a firm that is economically efficient must always be technologically efficient

is not always economically efficient, but a firm that is economically efficient must always be technologically efficient

An industry with a high concentration ratio may still be competitive if __________. there are no close substitutes for its product its barriers to entry are low its production is geographically concentrated it has a high ratio of value added to sales

its barriers to entry are low

According to Nobel laureate Ronald Coase, firms exist in order to _________

minimize transaction costs

The air travel market, which is dominated by a few large firms, is an example of a(n) ___

oligipolistic

The correct ranking of the four basic market structures from lowest concentration to highest is __________.

perfect competition, monopolistic comp, oligopoly, monopoly

You have just been named President and Chief Executive Officer at the StrideRite Shoe Corporation. This appointment places you in the role of __________ to lower managers and to the stockholders. principal; principal principal; agent agent; principal agent; agent

principal; agent

A firm has achieved economic efficiency whenever it has __________. fully depreciated all of its assets produced the given output using the fewest inputs produced the given output at the lowest cost All of the above are correct.

produced the given output at the lowest cost

economic efficiency necessarily occurs when the firm

produces a given output at least cost

Joe's Pizza Shop only makes pizza. If each pizza requires five people, each of whom specializes in one task, this method of production is an example of __________

team production

Quick Auto Service will do oil changes. If each oil change is done by five people, each of whom specializes in one task, this is an example of __________. economies of scope team production economies of monitoring economies of coordination

team production

A corporation is best defined as a form of business organization __________.

that offers owners limited liability and low-cost capital

Economies of scale are cost reductions achieved by ________

the production of large amounts of a single product

The theory of the firm assumes the main goal of a firm is __________

to make as much profit as possible

economic profit is equal to

total revenue minus opportunity cost

Costs to the firm arising from reaching agreements with suppliers regarding input prices and then ensuring that the terms of agreements are fulfilled, are called __________. negotiation costs agency costs transactions costs implicit costs

transactions costs

Which of the following is NOT an advantage of firm coordination of economic activity?

when firms coordinate economic activity, there are no opportunity costs

technological efficiency necessarily means producing

without using excess inputs