Mod 4 Review (Lesson 10)
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
The table gives techniques that Jitters Coffee Company can use to package 5,000 pounds of coffee. If the cost of capital is $50 per unit and the cost of labor is $100 per unit, the economically efficient technique for packaging 5,000 pounds of coffee is __________. A B C D REVIEW MOD 4, LESSON 10, CGA QUESTION 11
A REVIEW MOD 4, LESSON 10, CGA, QUESTION 11
Which of the following compensation schemes can be explained as an attempt to solve a principal-agent problem? 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. 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. 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 the above compensation schemes attempt to solve a principal-agent problem.
All of the above compensation schemes attempt to solve a principal-agent problem.
Which of the following statements about the relationship between technological efficiency and economic efficiency is INCORRECT? A technologically inefficient method of production is never economically efficient. Economic efficiency requires technological efficiency. All technologically efficient methods of production are also economically efficient. None of the above is correct, because all the answers are correct statements about the relationship between technological and economic efficiency.
All technologically efficient methods of production are also economically efficient.
The table gives techniques that Jitters Coffee Company can use to package 5,000 pounds of coffee. Which technique(s) is (are) technologically inefficient? A C B and C B, C, and D REVIEW MOD 4, LESSON 10, CGA, QUESTION 10
B and C REVIEW MOD 4, LESSON 10, CGA, QUESTION 10
Which of the following best defines "economies of scope"? As output expands, the total cost of producing a good decreases. As output expands, the cost of producing a unit of a good decreases. 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. Costs increase as firms seek to find more consumers.
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.
A firm pays its workers $10 per hour. This cost is an example of an __________. opportunity cost implicit cost explicit cost Both a and c are correct.
Both a and c are correct.
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. On the local level, grocery stores are not as concentrated as they appear on the national level. The level of concentration is overestimated when viewing the national level. Both a and c are correct.
On the local level, grocery stores are more concentrated than they appear on the national level.
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 is NOT an advantage of firm coordination of economic activity? Firm coordination decreases transactions costs. When firms coordinate economic activity, there are no opportunity costs. Firms can take advantage of the economies of team production. Economies of scope can be realized by firms that produce a range of goods and services that share specialized resources.
When firms coordinate economic activity, there are no opportunity costs.
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
A normal profit is best described as __________. the revenue remaining after all money (explicit) costs have been paid the profit a firm makes each year an implicit cost that is the average return for entrepreneurship an explicit cost that is the average return for entrepreneurship
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
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
The principal-agent problem is best explained as __________. managers trying to cope with employees that are inefficient proprietors who don't receive any money payment for their entrepreneurial skills devising penalties that eliminate employee waste devising incentives that encourage employees to act on the owner's behalf
devising incentives that encourage employees to act on the owner's 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 __________. accounting profits include depreciation and economic profits do not economic profits include depreciation and accounting profits do not accounting profits include implicit costs and economic profits do not economic profits include implicit costs and accounting profits do not
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
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 __________. he had an economic loss of $12,000 in his first year he has an implicit rental rate of $12,000 in his first year he has made an economic profit of $100,000 in his first year he has suffered an economic loss of $100,000 in his first year
he had an economic loss of $12,000 in his first year
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 __________. maximize transactions costs minimize transactions costs maximize transactions employ workers
minimize transactions costs
The air travel market, which is dominated by a few large firms, is an example of a(n) __________ . monopoly market oligopolistic market perfectly competitive market monopolistically competitive market
oligopolistic market
The correct ranking of the four basic market structures from lowest concentration to highest is __________. perfect competition, oligopoly, monopolistic competition, monopoly monopoly, oligopoly, monopolistic competition, perfect competition perfect competition, monopolistic competition, oligopoly, monopoly monopoly, monopolistic competition, oligopoly, perfect competition
perfect competition, monopolistic competition, 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 produces a given output by using the least inputs earns a normal profit earns an economic profit
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 __________ economies of scope team production economies of monitoring economies of coordination
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 eliminates the principal-agent problem that taxes owners' profits only once, because all their capital is at risk that offers owners limited liability and low-cost capital that offers owners limited liability but also leads to high-cost capital
that offers owners limited liability and low-cost capital
Economies of scale are cost reductions achieved by __________. the production of multiple, related products the production of large amounts of a single product minimizing employment maximizing employment
the production of large amounts of a single product
The theory of the firm assumes the main goal of a firm is __________. to be as big as possible to maximize revenue to make as much profit as possible to maximize utility
to make as much profit as possible
Economic profit is equal to __________ . total cost minus opportunity cost total revenue minus opportunity cost explicit costs minus implicit costs explicit costs plus implicit costs
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
Technological efficiency necessarily means producing __________ . at minimum cost with the highest level of technology available without using excess inputs technology itself
without using excess inputs
