Practice for Test 2 (Chapters 9,10,11, & 16)

Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's implicit costs, including a normal profit, are

$136,000.

Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's explicit costs are

$150,000.

Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's accounting profit is

$230,000.

Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's total economic costs are

$286,000. (implicit cost - accounting cost)

Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's total revenues exceed its total costs, including a normal profit, by

$94,000

Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's economic profit is

$94,000. (380,000 - 286,000(the sun of all the cost items on the list)= 94000)

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct? AP continues to rise so long as TP is rising. AP reaches a maximum before TP reaches a maximum. TP reaches a maximum when the MP of the variable input becomes zero. MP cuts AP at the maximum AP.

AP continues to rise so long as TP is rising.

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? None are either implicit or explicit costs. All are opportunity costs. All are implicit costs. All are explicit costs.

All are opportunity costs.

Which of the following best expresses the law of diminishing returns?

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

The total output of a firm will be at a maximum where MP is at a maximum. AP is at a minimum. MP is zero. AP is at a maximum.

MP is zero.

Which of the following represents a long-run adjustment? A farmer uses an extra dose of fertilizer on his corn crop. Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.Correct A computer manufacturer cuts back on its purchases of plastic and circuitry. A supermarket hires four additional clerks.

Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.

The law of diminishing returns results in an eventually rising marginal product curve. a total product curve that eventually increases at a decreasing rate. an eventually falling marginal-cost curve. a total product curve that rises indefinitely.

a total product curve that eventually increases at a decreasing rate.

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

The basic difference between the short run and the long run is that all costs are fixed in the short run, but all costs are variable in the long run. the law of diminishing returns applies in the long run but not in the short run. at least one resource is fixed in the short run, while all resources are variable in the long run. economies of scale may be present in the short run but not in the long run.

at least one resource is fixed in the short run, while all resources are variable in the long run.

To the economist, total cost includes explicit and implicit costs.Correct neither implicit nor explicit costs. implicit, but not explicit, costs. explicit, but not implicit, costs.

explicit and implicit costs.

To economists, the main difference between the short run and the long run is that the law of diminishing returns applies in the long run, but not in the short run. in the long run all resources are variable, while in the short run at least one resource is fixed. fixed costs are more important to decision making in the long run than they are in the short run. in the short run all resources are fixed, while in the long run all resources are variable.

in the long run all resources are variable, while in the short run at least one resource is fixed.

If in the short run a firm's total product is increasing, then its marginal product must also be increasing. marginal product must be decreasing. marginal product could be either increasing or decreasing. average product must also be increasing.

marginal product could be either increasing or decreasing.

When total product is increasing at a decreasing rate, marginal product is positive and increasing. positive and decreasing. constant. negative.

positive and decreasing.

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting profits were $100,000 and its economic profits were $0 losses were $500,000 and its economic losses were $0 profits were $500,000 and its economic profits were $1,000,000 profits were $0 and its economic losses were $500,000.

profits were $0 and its economic losses were $500,000.

Marginal product is the change in total output attributable to the employment of one more worker the change in total revenue attributable to the employment of one more worker the change in total cost attributable to the employment of one more worker total product divided by the number of workers employed.

the change in total output attributable to the employment of one more worker.

The basic characteristic of the short run is that barriers to entry prevent new firms from entering the industry the firm does not have sufficient time to change the size of its plant the firm does not have sufficient time to cut its rate of output to zero a firm does not have sufficient time to change the amounts of any of the resources it employs.

the firm does not have sufficient time to change the size of its plant.

Implicit and explicit costs are different in that explicit costs are opportunity costs; implicit costs are not. implicit costs are opportunity costs; explicit costs are not. the latter refer to nonexpenditure costs and the former to monetary payments. the former refer to nonexpenditure costs and the latter to monetary payments.

the former refer to nonexpenditure costs and the latter to monetary payments.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes economies and diseconomies of scale. X-inefficiency. the law of diminishing returns. the law of diminishing marginal utility.

the law of diminishing returns.

Accounting profits equal total revenue minus total explicit costs. total implicit costs. total economic costs. economic profits.

total explicit costs.