Mirco Ch. 8

Table 22.1 The accounting profit is equal to A. $925. B. $1,525. C. $2,125. D. $4,000.

A. $925.

Adam Jones is the owner/operator of a flower shop. Last year he earned $250,000 in total revenue. His explicit costs were $175,000..... highest offer being $75,000 per year. Which of the following is true about Adam's accounting and economic profit? A. Accounting profit = $75,000; economic profit = $0. B. Accounting profit = $175,000; economic profit = $75,000. X C. Accounting profit = $75,000; economic profit = negative $100,000. D. Accounting profit = $0; economic profit = negative $75,000.

A. Accounting profit = $75,000; economic profit = $0.

Which of the following does not affect marginal costs? A. An increase in property taxes. B. A decrease in Social Security taxes. C. An increase in payroll taxes. D. An increase in state unemployment taxes.

A. An increase in property taxes.

Normal profit A. Covers the full opportunity cost of the resources used by the firm. B. Is an above-average rate of return. C. Is the accounting profit earned when economic profits are greater than zero. D. Is sufficient to induce entry into the industry.

A. Covers the full opportunity cost of the resources used by the firm.

Profit A. is the difference between total revenue and total cost. B. Is the difference between variable costs and fixed costs. C. Is always a number greater than zero. D. Must be reported to Wall Street quarterly

A. is the difference between total revenue and total cost.

Which of the following should not be included when calculating accounting profit? A. The cost of taxes. B. The return on inventory investment. C. The cost of rent. D. The cost of utilities.

B. The return on inventory investment.

Which of the following is the best explanation for why individuals own small businesses? A. Because they cannot earn a living working for corporate America. B. To provide a product consumers want. C. The expectation of profit. D. To gain experience for their next job.

C. The expectation of profit.

Competitive firms cannot individually affect market price because A. There is an infinite demand for their goods. B. Demand is perfectly inelastic for their goods. C. Their individual production is insignificant relative to the production of the industry. D. The government exercises control over the market power of competitive firms.

C. Their individual production is insignificant relative to the production of the industry.

Which of the following industries is perfectly competitive? A. Autos. B. Cell phone service. C. Wholesale fresh flowers. D. Fast-food restaurants.

C. Wholesale fresh flowers.

Which of the following is generally a fixed cost? A. Property taxes on land used in production. B. Wages. C. Profit taxes. D. Utilities.

A. Property taxes on land used in production.

An In the News article discusses "T-Shirt Shop Owner's Lament: Too Many T-Shirt Shops." If T-shirt shops are perfectly competitive firms, then A. The barriers to entry are low. B. Shops can definitely earn an economic profit in the long run. C. There are few T-shirt shops. D. Each shop has market power.

A. The barriers to entry are low.

A perfectly competitive firm is a price taker because A. The price of the product is determined by many buyers and sellers. B. It has market power. C. Market supply is upward-sloping. D. Its products are differentiated.

A. The price of the product is determined by many buyers and sellers.

A monopoly occurs when A. There is only one producer of a good or service. B. There is only one buyer of a good or service. C. Owners take on additional risk and earn huge profits. D. Companies become greedy and raise the price of a good or service.

A. There is only one producer of a good or service.

Table 22.1 Suppose the entrepreneur could earn $1,000 as an employee elsewhere. This means the economic profit is A. -$925. B. -$75. C. -$1,000. D.$0

B. -$75.

Explicit costs A. Include only payments to entrepreneurship. B. Are the sum of actual monetary payments made for resources used to produce a good. C. Include the market value of all resources used to produce a good. D. Are the total opportunity costs of resources used to produce a good.

B. Are the sum of actual monetary payments made for resources used to produce a good.

Entrepreneurship A. Always involves greater rewards than risks. B. Can result in economic losses. C. Cannot earn an economic profit. D. Occurs in small businesses, but not large corporations.

B. Can result in economic losses.

In defining economic costs, economists emphasize A. Explicit and implicit costs while accountants recognize only implicit costs. B. Explicit and implicit costs while accountants recognize only explicit costs. C. Only explicit costs while accountants recognize only implicit costs. D. Only explicit costs while accountants recognize explicit and implicit costs.

B. Explicit and implicit costs while accountants recognize only explicit costs.

The decision to start or expand a business is known as the A. Output decision. B. Investment decision. C. Production decision. D. Profit maximization decision.

B. Investment decision.

If Microsoft is thinking about building a new factory, it is making a A. Long-run decision that will definitely enhance its profit. B. Long-run decision that may enhance its profit. C. Short-run decision that will definitely enhance its profit. D. Short-run decision that may enhance its profit.

B. Long-run decision that may enhance its profit.

All of the following are ways a business can earn economic profits except A. Discover new products. B. Maximize implicit costs but not explicit costs. C. Take above-average risks. D. Find new and better methods of production.

B. Maximize implicit costs but not explicit costs.

Market structure is determined by the A. Annual revenue, costs, and profits for an industry. B. Number and relative size of the firms in an industry. C. Amount of compensation given to the CEOs. D. Price charged for the good or service produced

B. Number and relative size of the firms in an industry.

Greater-than-normal profit represents A. Explicit costs minus implicit costs. B. Payment for entrepreneurship. C. Below-average returns to capital. D. Exploitation of workers.

B. Payment for entrepreneurship.

The market price for T-shirts sold in a perfectly competitive market is determined by A. The largest firm in the industry. B. Supply and demand. C. Government regulation. D. Strategic interaction.

B. Supply and demand.

In the News article, "Are Profits Bad?" most Americans feel that profits A. Are bad. B. Do not motivate better product results and lower prices. C. Are good. D. Cause firms to ignore social needs.

C. Are good.

8. Implicit costs A. Include only payments to workers and lenders. B. Represent actual monetary payments made for resources used to produce a good such as oil C. Are the costs to produce a good or service for which no direct payment is made. D. Are the total opportunity costs of resources and inputs used to produce a good.

C. Are the costs to produce a good or service for which no direct payment is made.

Production of catfish has skyrocketed in the United States from 16 million ..... Which of the following is the motive that enticed many farmers to give up the production of row crops to produce catfish? A. Row crops are relatively more profitable than catfish. B. Row crops necessarily have negative economic profits. C. Catfish is relatively more profitable than row crops. D. Catfish is easier to produce than row crops.

C. Catfish is relatively more profitable than row crops.

One in the News feature reports that General Motors planned to essentially quit making cars and trucks in the United Stales.... Based on these particular news clips, what is the difference between GM's and Dell's decisions? A. Dell was trying to get rid of excess inventory, and GM was trying to become more efficient. B. GM was trying to maximize profits while Dell was trying to minimize losses. C. GM's decision to idle plants was a short-run shutdown decision. Dell, by contrast, made a long-run decision to exit a specific market. D. There is no difference between GM's and Dell's decisions; both were trying to get rid of excess inventory.

C. GM's decision to idle plants was a short-run shutdown decision. Dell, by contrast, made a long-run decision to exit a specific market.

When a producer can control the market price for the good it sells, the producer A. Is an entrepreneur. B. Is certain to make a profit. C. Has market power. D. Is a perfectly competitive firm.

C. Has market power.

The perfectly competitive market structure includes all of the following except A. Many firms. B. Identical products. C. Large advertising budgets. D. Low entry barriers.

C. Large advertising budgets.

Businesses that fail to account for implicit costs, like the strawberry farmer, Hiroshi Fujishige, who failed to consider the enormous opportunity of selling his property to Disneyland, will A. Go out of business immediately. B. Make higher-than-normal profits. C Make more money when they shut down. D.. Have to increase revenues in order to stay in business.

C. Make more money when they shut down.

Economists assume the principal motivation of producers is A. Psychological gratification. B. Social status. C. Profit. D. Their preference for being "their own person."

C. Profit.

If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can A. Not sell additional walnuts unless the firm lowers its price. B. Not sell additional walnuts at any price because the market is at equilibrium. C. Sell an additional pound of walnuts at $4.99. D. Sell more only by increasing its advertising budget.

C. Sell an additional pound of walnuts at $4.99.

A firm that makes zero economic profits A. Must eventually go bankrupt and exit the industry. B. Does not cover its variable costs and should shut down in the short run. C. Incurs an accounting loss if fixed costs are greater than variable costs. D. Covers all its costs, including a provision for normal profit.

D. Covers all its costs, including a provision for normal profit.

An In the News article, "T-Shirt Shop Owner's Lament. Too Many T-Shirt Shops," states that if T-shirt shops are perfectly competitive firms, then each shop A. Is a price setter. B. Has market power. C. Confronts a downward-sloping demand curve for its own output. D. Is a price taker.

D. Is a price taker.

The profit motive can encourage businesses to do all of the following except A. Pollute the environment. B. Restrict competition. C. Provide unsafe working conditions. D. Maximize social welfare.

D. Maximize social welfare.

In which of the following types of markets does a single firm have the most market power? A. Perfect competition. B. Monopolistic competition. C. Oligopoly. D. Monopoly.

D. Monopoly.

An investment decision involves choosing A. A rate of output and is a short-run decision. B. A rate of output and is a long-run decision. C. The amount of plants and equipment and is a short-run decision. D. The amount of plants and equipment and is a long-run decision.

D. The amount of plants and equipment and is a long-run decision.

Perfect competition is a situation in which A. Every year, owners are likely to earn economic profits. B. Every year, owners are likely to earn economic losses. C. There are many firms and several buyers or sellers have market power. D. There are many firms and no buyer or seller has market power.

D. There are many firms and no buyer or seller has market power.