Question 1

Implicit costs are measured by

Accepted Answer

A)  the value of the next-best alternative uses of inputs. 
B)  actual expenses paid by a firm. 
C)  total revenues minus total costs. 
D)  the lowest value of all alternative uses of inputs. 
A)  the value of the next-best alternative uses of inputs. 
B)  actual expenses paid by a firm. 
C)  total revenues minus total costs. 
D)  the lowest value of all alternative uses of inputs.

Question 2

Suppose that Rihanna sells 1,000 tickets to a concerts at $480 each. If the equilibrium price is $600 per ticket for a fixed supply of 1,000 tickets, what is the value of the additional economic rent that Rihanna could earn if she charged the market clearing price?

Accepted Answer

A)  $1,080,000 
B)  $120,000 
C)  $600,000 
D)  $480,000 
A)  $1,080,000 
B)  $120,000 
C)  $600,000 
D)  $480,000

Question 3

A portion of a worker's earnings is rent if

Accepted Answer

A)  the worker was the last person hired at the going wage rate. 
B)  the supply curve of labor is horizontal. 
C)  the worker would accept a small wage cut without quitting or working for someone else. 
D)  the worker has industry-specific skills. 
A)  the worker was the last person hired at the going wage rate. 
B)  the supply curve of labor is horizontal. 
C)  the worker would accept a small wage cut without quitting or working for someone else. 
D)  the worker has industry-specific skills.

Question 4

The payment for a factor of production that is completely inelastic in supply is

Accepted Answer

A)  opportunity cost. 
B)  economic rent. 
C)  discounting. 
D)  limited liability. 
A)  opportunity cost. 
B)  economic rent. 
C)  discounting. 
D)  limited liability.

Question 5

The difference between the nominal rate of interest and the real rate of interest is

Accepted Answer

A)  handling charges. 
B)  government regulatory charges. 
C)  administrative overhead charges. 
D)  the anticipated rate of inflation. 
A)  handling charges. 
B)  government regulatory charges. 
C)  administrative overhead charges. 
D)  the anticipated rate of inflation.

Question 6

You own $10,000 in personal property, $3,000 in Corporation A stocks, $1,000 in U.S. Savings Bonds and have $500 in your checking account. If Corporation A goes bankrupt, the most you could lose is

Accepted Answer

A)  $13,500. 
B)  $11,500. 
C)  $3,000. 
D)  $500. 
A)  $13,500. 
B)  $11,500. 
C)  $3,000. 
D)  $500.

Question 7

What is the present value of $104.25 that you could receive one year from now, given that the rate of interest is 4.25 percent?

Accepted Answer

A)  $108.50 
B)  $0.00 
C)  $4.25 
D)  $100.00 
A)  $108.50 
B)  $0.00 
C)  $4.25 
D)  $100.00

Question 8

Angie is debating whether to take a job as a professional therapist or a florist. She will earn $40,000 a year as a therapist or $25,000 a year as a florist. If she chooses to be a therapist, the economic rent is

Accepted Answer

A)  $40,000. 
B)  $25,000. 
C)  $15,000. 
D)  unable to determine. 
A)  $40,000. 
B)  $25,000. 
C)  $15,000. 
D)  unable to determine.

Question 9

The most common form of business organization in the United States is the

Accepted Answer

A)  proprietorship. 
B)  partnership. 
C)  corporation. 
D)  cooperative. 
A)  proprietorship. 
B)  partnership. 
C)  corporation. 
D)  cooperative.

Question 10

A firm is considering an investment that will cost $2 million today and $2 million a year from now. It will generate revenues of $1 million a year for five years, beginning two years from now. If the interest rate is 10 percent, the firm should

Accepted Answer

A)  not make the investment because the present value of the net revenues is less than the present value of the investment spending. 
B)  not make the investment because the present value of the net revenues is less than $4 million. 
C)  make the investment because the present value of the net revenues is greater than the present value of the investment. 
D)  make the investment because the project will generate a net profit of $1 million. 
A)  not make the investment because the present value of the net revenues is less than the present value of the investment spending. 
B)  not make the investment because the present value of the net revenues is less than $4 million. 
C)  make the investment because the present value of the net revenues is greater than the present value of the investment. 
D)  make the investment because the project will generate a net profit of $1 million.

Question 11

A legal claim entitling the owner of the claim to fixed annual payments and a lump-sum payment is called a(n)

Accepted Answer

A)  equity share. 
B)  bond. 
C)  stock. 
D)  debit. 
A)  equity share. 
B)  bond. 
C)  stock. 
D)  debit.

Question 12

A business organization that employs resources to produce goods and services for profit is

Accepted Answer

A)  economic rent. 
B)  a firm. 
C)  inside information. 
D)  the opportunity cost of capital. 
A)  economic rent. 
B)  a firm. 
C)  inside information. 
D)  the opportunity cost of capital.

Question 13

What is the present value of $100 three years from now at an interest rate of 6%?

Accepted Answer

A)  $83.96 
B)  $82 
C)  $94.34 
D)  $119.10 
A)  $83.96 
B)  $82 
C)  $94.34 
D)  $119.10

Question 14

Which of the following is NOT an advantage of a partnership?

Accepted Answer

A)  the taxation of profits 
B)  the issue of liability 
C)  the legal paperwork needed to form a partnership 
D)  separation of partner's duties 
A)  the taxation of profits 
B)  the issue of liability 
C)  the legal paperwork needed to form a partnership 
D)  separation of partner's duties

Question 15

The difference between explicit costs and implicit costs

Accepted Answer

A)  is that explicit costs are opportunity costs while implicit costs are not. 
B)  is that implicit costs are opportunity costs while explicit costs are not. 
C)  is that explicit costs are short-run costs and implicit costs are long-run costs. 
D)  is that explicit costs involve resources that are purchased and implicit costs involve resources the firm already owns. 
A)  is that explicit costs are opportunity costs while implicit costs are not. 
B)  is that implicit costs are opportunity costs while explicit costs are not. 
C)  is that explicit costs are short-run costs and implicit costs are long-run costs. 
D)  is that explicit costs involve resources that are purchased and implicit costs involve resources the firm already owns.

Question 16

Economic rent is broadly defined as

Accepted Answer

A)  a payment received by a landowner. 
B)  a payment for the use of any resource that has a fixed supply. 
C)  the return to owners of farmland. 
D)  the dividend return on a share of stock. 
A)  a payment received by a landowner. 
B)  a payment for the use of any resource that has a fixed supply. 
C)  the return to owners of farmland. 
D)  the dividend return on a share of stock.

Question 17

An accountant shows an invoice for a resource to the manager of the firm. They are discussing

Accepted Answer

A)  explicit costs. 
B)  implicit costs. 
C)  economic profits. 
D)  either explicit costs or implicit costs, but we can't tell without more information. 
A)  explicit costs. 
B)  implicit costs. 
C)  economic profits. 
D)  either explicit costs or implicit costs, but we can't tell without more information.

Question 18

Which of the following is a TRUE statement about stock markets?

Accepted Answer

A)  Economists can make above-average profits in the stock market because of their specialized knowledge of economics. 
B)  It is always better to buy growth stocks than the older and more stable blue-chip stocks. 
C)  The stock market on average over time is random and totally unrelated to the performance of the economy. 
D)  It is illegal for a friend of a corporate executive to make large profits in the stock market by using his inside information. 
A)  Economists can make above-average profits in the stock market because of their specialized knowledge of economics. 
B)  It is always better to buy growth stocks than the older and more stable blue-chip stocks. 
C)  The stock market on average over time is random and totally unrelated to the performance of the economy. 
D)  It is illegal for a friend of a corporate executive to make large profits in the stock market by using his inside information.

Question 19

If all the return to a resource is economic rent, we know that

Accepted Answer

A)  the price of the resource is below its opportunity cost. 
B)  the price of the resource equals its opportunity cost. 
C)  the price of the resource is above its opportunity cost. 
D)  the resource has no opportunity cost. 
A)  the price of the resource is below its opportunity cost. 
B)  the price of the resource equals its opportunity cost. 
C)  the price of the resource is above its opportunity cost. 
D)  the resource has no opportunity cost.

Question 20

A bond is

Accepted Answer

A)  a legal claim to a part of a corporation's future profits that includes voting rights. 
B)  a legal claim to a part of a corporation's future profits that does not include voting rights. 
C)  a legal claim against a firm, providing a fixed annual coupon payment and a lump-sum payment at maturity. 
D)  a nonlegal promise to provide an annual payment to the holder when the corporation makes profits. 
A)  a legal claim to a part of a corporation's future profits that includes voting rights. 
B)  a legal claim to a part of a corporation's future profits that does not include voting rights. 
C)  a legal claim against a firm, providing a fixed annual coupon payment and a lump-sum payment at maturity. 
D)  a nonlegal promise to provide an annual payment to the holder when the corporation makes profits.

Exam 21: Rents, Profits, and the Financial Environment of Business

Implicit costs are measured by

Suppose that Rihanna sells 1,000 tickets to a concerts at $480 each. If the equilibrium price is $600 per ticket for a fixed supply of 1,000 tickets, what is the value of the additional economic rent that Rihanna could earn if she charged the market clearing price?

A portion of a worker's earnings is rent if

The payment for a factor of production that is completely inelastic in supply is

The difference between the nominal rate of interest and the real rate of interest is

You own $10,000 in personal property, $3,000 in Corporation A stocks, $1,000 in U.S. Savings Bonds and have $500 in your checking account. If Corporation A goes bankrupt, the most you could lose is

What is the present value of $104.25 that you could receive one year from now, given that the rate of interest is 4.25 percent?

Angie is debating whether to take a job as a professional therapist or a florist. She will earn $40,000 a year as a therapist or $25,000 a year as a florist. If she chooses to be a therapist, the economic rent is

The most common form of business organization in the United States is the

A firm is considering an investment that will cost $2 million today and $2 million a year from now. It will generate revenues of $1 million a year for five years, beginning two years from now. If the interest rate is 10 percent, the firm should

A legal claim entitling the owner of the claim to fixed annual payments and a lump-sum payment is called a(n)

A business organization that employs resources to produce goods and services for profit is

What is the present value of $100 three years from now at an interest rate of 6%?

Which of the following is NOT an advantage of a partnership?

The difference between explicit costs and implicit costs

Economic rent is broadly defined as

An accountant shows an invoice for a resource to the manager of the firm. They are discussing

Which of the following is a TRUE statement about stock markets?

If all the return to a resource is economic rent, we know that

A bond is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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