Question 1

The opportunity costs associated with the use of resources owned by a firm are usually

Accepted Answer

A)  externalities. 
B)  implicit costs. 
C)  explicit costs. 
D)  sunk costs. 
A)  externalities. 
B)  implicit costs. 
C)  explicit costs. 
D)  sunk costs.

Question 2

The long run is a period of

Accepted Answer

A)  at least one year. 
B)  sufficient length to allow a firm to expand output by hiring additional workers. 
C)  sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. 
D)  sufficient length to allow a firm to transform economic losses into economic profits. 
A)  at least one year. 
B)  sufficient length to allow a firm to expand output by hiring additional workers. 
C)  sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. 
D)  sufficient length to allow a firm to transform economic losses into economic profits.

Question 3

Figure 8-7  
Which of the following is true for Figure 8-7?

Accepted Answer

A)  Firms in this industry begin to experience diminishing returns to their variable factors at output q 1. 
B)  Between q 1 and q 2, firms in this industry experience economies of scale. 
C)  Firms producing output rates less than q 1 or more than q 2 will find it difficult to survive. 
D)  The largest firms in this industry have the lowest per-unit cost. 
A)  Firms in this industry begin to experience diminishing returns to their variable factors at output q 1. 
B)  Between q 1 and q 2, firms in this industry experience economies of scale. 
C)  Firms producing output rates less than q 1 or more than q 2 will find it difficult to survive. 
D)  The largest firms in this industry have the lowest per-unit cost.

Question 4

The owners of a business

Accepted Answer

A)  are paid the market rate of return for resources they supply to the firm. 
B)  are residual income claimants. 
C)  have little incentive to monitor shirking on the part of employees. 
D)  have little incentive to provide their employees with an incentive system that encourages operational efficiency. 
A)  are paid the market rate of return for resources they supply to the firm. 
B)  are residual income claimants. 
C)  have little incentive to monitor shirking on the part of employees. 
D)  have little incentive to provide their employees with an incentive system that encourages operational efficiency.

Question 5

Which of the following factors would not shift the cost curves of an automobile company upward?

Accepted Answer

A)  a regulation requiring all automobiles be equipped with improved safety equipment 
B)  an increase in the price of steel used to make automobiles 
C)  an increase in the property tax on buildings and equipment used by the automobile company 
D)  An employee develops a new method of installing doors on the cars that requires half as many workers as before. 
A)  a regulation requiring all automobiles be equipped with improved safety equipment 
B)  an increase in the price of steel used to make automobiles 
C)  an increase in the property tax on buildings and equipment used by the automobile company 
D)  An employee develops a new method of installing doors on the cars that requires half as many workers as before.

Question 6

Which of the following must be true if average total costs are rising?

Accepted Answer

A)  Average fixed costs must be rising. 
B)  Total fixed costs must be rising. 
C)  Average variable costs must be falling. 
D)  Marginal costs must be greater than average total costs. 
A)  Average fixed costs must be rising. 
B)  Total fixed costs must be rising. 
C)  Average variable costs must be falling. 
D)  Marginal costs must be greater than average total costs.

Question 7

Which of the following is true?

Accepted Answer

A)  under the partnership form of business organization, the owners are not personally liable for the debts of the business. 
B)  when employees also own a business, their incentive to shirk is removed. 
C)  the limited liability of stockholders under the corporate business structure makes it easier to raise equity capital. 
D)  under the corporate form of business organization, the owners of the firm are personally liable for its debts. 
A)  under the partnership form of business organization, the owners are not personally liable for the debts of the business. 
B)  when employees also own a business, their incentive to shirk is removed. 
C)  the limited liability of stockholders under the corporate business structure makes it easier to raise equity capital. 
D)  under the corporate form of business organization, the owners of the firm are personally liable for its debts.

Question 8

The three basic legal forms of business enterprise are

Accepted Answer

A)  monopolists, competitors, and enterprises. 
B)  vertical, horizontal, and conglomerate corporations. 
C)  conglomerates, multinationals, and partnerships. 
D)  proprietorships, partnerships, and corporations. 
A)  monopolists, competitors, and enterprises. 
B)  vertical, horizontal, and conglomerate corporations. 
C)  conglomerates, multinationals, and partnerships. 
D)  proprietorships, partnerships, and corporations.

Question 9

The long run is a period of

Accepted Answer

A)  at least one year. 
B)  sufficient length to allow a firm to expand output by hiring additional workers. 
C)  sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. 
D)  sufficient length to allow a firm to transform economic losses into economic profits by hiring better workers. 
A)  at least one year. 
B)  sufficient length to allow a firm to expand output by hiring additional workers. 
C)  sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. 
D)  sufficient length to allow a firm to transform economic losses into economic profits by hiring better workers.

Question 10

Interest foregone on financial capital invested in a firm represents an economic cost

Accepted Answer

A)  only if the firm borrows to finance capital investments. 
B)  only when the funds are used to buy machinery. 
C)  because funds invested in the firm could be earning interest elsewhere. 
D)  because accountants have traditionally input an interest cost for this item. 
A)  only if the firm borrows to finance capital investments. 
B)  only when the funds are used to buy machinery. 
C)  because funds invested in the firm could be earning interest elsewhere. 
D)  because accountants have traditionally input an interest cost for this item.

Question 11

Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?

Accepted Answer

A)  They recognize that operational efficiency promotes the public interest. 
B)  As residual claimants, owners will receive a higher income from increased efficiency. 
C)  The owners will be able to keep production costs low by providing free managerial services to the firm. 
D)  The owners will be able to gain by paying employees below market wages, which will improve the overall efficiency of the economy. 
A)  They recognize that operational efficiency promotes the public interest. 
B)  As residual claimants, owners will receive a higher income from increased efficiency. 
C)  The owners will be able to keep production costs low by providing free managerial services to the firm. 
D)  The owners will be able to gain by paying employees below market wages, which will improve the overall efficiency of the economy.

Question 12

Larger firms will often have lower minimum per-unit costs than smaller firms because

Accepted Answer

A)  employee shirking is less of a problem. 
B)  large-scale output allows greater specialization for both labor and machines in the production process. 
C)  mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. 
D)  all of the above are correct. 
A)  employee shirking is less of a problem. 
B)  large-scale output allows greater specialization for both labor and machines in the production process. 
C)  mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. 
D)  all of the above are correct.

Question 13

What is the difference between accounting profit and economic profit?

Accepted Answer

A)  They are the same thing. 
B)  They are only different if the accountant makes a mistake. 
C)  Accounting profit is usually smaller than economic profits. 
D)  Accounting profit makes no allowance for several implicit costs, including equity capital, while economic profit takes these costs into account. 
A)  They are the same thing. 
B)  They are only different if the accountant makes a mistake. 
C)  Accounting profit is usually smaller than economic profits. 
D)  Accounting profit makes no allowance for several implicit costs, including equity capital, while economic profit takes these costs into account.

Question 14

When an economist says a firm is earning zero economic profit, this implies that the firm

Accepted Answer

A)  will be forced out of business in the near future unless market conditions change. 
B)  is earning a zero rate of return on its assets. 
C)  is earning as high a rate of return now as could be earned in other industries. 
D)  has an accounting profit of zero. 
A)  will be forced out of business in the near future unless market conditions change. 
B)  is earning a zero rate of return on its assets. 
C)  is earning as high a rate of return now as could be earned in other industries. 
D)  has an accounting profit of zero.

Question 15

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

Accepted Answer

A)  the law of diminishing returns is in effect. 
B)  long-run average costs must be decreasing. 
C)  the firm is experiencing diseconomies of scale. 
D)  the firm should increase production. 
E)  the firm is experiencing constant returns to scale. 
A)  the law of diminishing returns is in effect. 
B)  long-run average costs must be decreasing. 
C)  the firm is experiencing diseconomies of scale. 
D)  the firm should increase production. 
E)  the firm is experiencing constant returns to scale.

Question 16

When the owner of a business invests his or her own money in the business, they give up the interest this money could be earning in the bank. This forgone interest is called

Accepted Answer

A)  the marginal cost of diminishing financial services. 
B)  the opportunity cost of equity capital. 
C)  the opportunity cost of labor services. 
D)  interest expense and is included as a cost in the accounting statements of the business. 
A)  the marginal cost of diminishing financial services. 
B)  the opportunity cost of equity capital. 
C)  the opportunity cost of labor services. 
D)  interest expense and is included as a cost in the accounting statements of the business.

Question 17

If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, your rate of economic profit is

Accepted Answer

A)  zero. 
B)  10 percent. 
C)  23 percent. 
D)  36 percent. 
A)  zero. 
B)  10 percent. 
C)  23 percent. 
D)  36 percent.

Question 18

Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost ( AFC ) is $14 and his marginal cost $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

Accepted Answer

A)  $5 
B)  $7 
C)  $8 
D)  $15 
A)  $5 
B)  $7 
C)  $8 
D)  $15

Question 19

The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this observation is either correct or incorrect.

Accepted Answer

She is most likely incorrect because of

Question 20

Which of the following provides the strongest evidence that the corporate form of business structure is relatively efficient, particularly when business firms are large?

Accepted Answer

A)  the fact that almost 90 percent of business revenues are generated by corporations 
B)  the fact that individual proprietorships are more numerous than corporations 
C)  the fact that economic theory indicates corporate managers have some leeway to pursue their own interests at the expense of the owners of the firm 
D)  the high salaries of many corporate executives, including some managing firms that are making economic losses 
A)  the fact that almost 90 percent of business revenues are generated by corporations 
B)  the fact that individual proprietorships are more numerous than corporations 
C)  the fact that economic theory indicates corporate managers have some leeway to pursue their own interests at the expense of the owners of the firm 
D)  the high salaries of many corporate executives, including some managing firms that are making economic losses

The opportunity costs associated with the use of resources owned by a firm are usually

The long run is a period of

Figure 8-7 Which of the following is true for Figure 8-7?

The owners of a business

Which of the following factors would not shift the cost curves of an automobile company upward?

Which of the following must be true if average total costs are rising?

Which of the following is true?

The three basic legal forms of business enterprise are

The long run is a period of

Interest foregone on financial capital invested in a firm represents an economic cost

Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?

Larger firms will often have lower minimum per-unit costs than smaller firms because

What is the difference between accounting profit and economic profit?

When an economist says a firm is earning zero economic profit, this implies that the firm

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

When the owner of a business invests his or her own money in the business, they give up the interest this money could be earning in the bank. This forgone interest is called

If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, your rate of economic profit is

Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost ( AFC ) is $14 and his marginal cost $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this observation is either correct or incorrect.

Which of the following provides the strongest evidence that the corporate form of business structure is relatively efficient, particularly when business firms are large?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Exam 8: Costs and the Supply of Goods

The opportunity costs associated with the use of resources owned by a firm are usually

The long run is a period of

Figure 8-7 Which of the following is true for Figure 8-7?

The owners of a business

Which of the following factors would not shift the cost curves of an automobile company upward?

Which of the following must be true if average total costs are rising?

Which of the following is true?

The three basic legal forms of business enterprise are

The long run is a period of

Interest foregone on financial capital invested in a firm represents an economic cost

Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency?

Larger firms will often have lower minimum per-unit costs than smaller firms because

What is the difference between accounting profit and economic profit?

When an economist says a firm is earning zero economic profit, this implies that the firm

If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then

When the owner of a business invests his or her own money in the business, they give up the interest this money could be earning in the bank. This forgone interest is called

If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, your rate of economic profit is

Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost ( AFC ) is $14 and his marginal cost $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?

The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this observation is either correct or incorrect.

Which of the following provides the strongest evidence that the corporate form of business structure is relatively efficient, particularly when business firms are large?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters