Ch.9 Test Bank (1-52)

The following is cost information for the Creamy Crisp Donut Company: 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 Refer to the above data. Creamy Crisp's explicit costs are:

$150,000.

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

$200,000 and its economic profits were zero.

The following is cost information for the Creamy Crisp Donut Company: 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 Refer to the above data. Creamy Crisp's accounting profit is:

$230,000

The following is cost information for the Creamy Crisp Donut Company: 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 Refer to the above data. Creamy Crisp's total economic costs are:

$286,000

The following is cost information for the Creamy Crisp Donut Company: 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 Refer to the above data. Creamy Crisp's economic profit is:

$94,000

The following is cost information for the Creamy Crisp Donut Company: 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 Refer to the above data. Creamy Crisp's implicit costs, including a normal profit, are:

$136,000.

Number of workers: 0 1 2 3 4 5 6 units of output: 0 40 90 126 150 165 180 Refer to the above data. The marginal product of the sixth worker is:

15 units of output

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 zero.

An explicit cost is:

a money payment made for resources not owned by the firm itself.

The law of diminishing returns results in:

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

Fixed cost is:

any cost which does not change when the firm changes its output.

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:

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

If you operated a small bakery, which of the following would be a variable cost in the short run?

baking supplies (flour, salt, etc.)

Marginal cost is the:

change in total cost that results from producing one more unit of output.

Economic profits are calculated by subtracting:

explicit and implicit costs from total revenue.

To the economist, total cost includes:

explicit and implicit costs, including a normal profit.

The short run is characterized by:

fixed plant capacity

Accounting profits are typically:

greater than economic profits because the former do not take implicit costs into account.

To economists, the main difference between the short run and the long run is that:

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 could be either increasing or decreasing.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:

marginal product of the third worker is 9.

In the above diagram curves 1, 2, and 3 represent the:

marginal, average, and total product curves respectively.

Economic cost can best be defined as:

payments that must be accounted for to obtain and retain the services of a resource.

When total product is increasing at a decreasing rate, marginal product is:

positive and decreasing.

When total product is increasing at an increasing rate, marginal product is:

positive and increasing.

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 zero and its economic losses were $500,000.

Which of the following is most likely to be a fixed cost?

property insurance premiums

Production costs to an economist:

reflect opportunity costs.

The long run is characterized by:

the ability of the firm to change its plant size.

The basic characteristic of the short run is that:

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

Implicit and explicit costs are different in that:

the former refer to non-expenditure costs and the latter to monetary payments.

Marginal product is:

the increase in total output attributable to the employment of one more worker

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:

the law of diminishing returns

Normal profit is:

the return to the entrepreneur when economic profits are zero.

Number of workers: 0 1 2 3 4 5 6 units of output: 0 40 90 126 150 165 180 Refer to the above data. Diminishing marginal returns become evident with the addition of the:

third worker

Accounting profits equal total revenue minus:

total explicit costs.

Number of workers: 0 1 2 3 4 5 6 units of output: 0 40 90 126 150 165 180 Refer to the above data. Average product is at a maximum when:

two workers are hired.

Which of the following represents a long-run adjustment?

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

The above diagram suggests that:

when marginal product lies above average product, average product is rising.

Which of the following is a short-run adjustment?

A local bakery hires two additional bakers.

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

All are opportunity costs

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.

Which of the following definitions is correct?

Economic profit = accounting profit - implicit costs.