Question 1

Which of the following is the formula used for computing economic profits?

Accepted Answer

A)  economic profits = total revenue - implicit costs 
B)  economic profits = total revenue - (implicit costs + explicit costs) 
C)  economic profits = total costs - total revenue 
D)  economic profits = total revenue - explicit costs 
A)  economic profits = total revenue - implicit costs 
B)  economic profits = total revenue - (implicit costs + explicit costs) 
C)  economic profits = total costs - total revenue 
D)  economic profits = total revenue - explicit costs

Question 2

Which of the following would be most likely to receive high economic rent payments?

Accepted Answer

A)  farmer 
B)  professional baseball player 
C)  factory worker 
D)  school teacher 
A)  farmer 
B)  professional baseball player 
C)  factory worker 
D)  school teacher

Question 3

The greater the interest rate

Accepted Answer

A)  the greater the present value of a sum to be received a year in the future. 
B)  the greater the opportunity cost of another dollar of current consumption. 
C)  the more a dollar invested today will be worth a year from now. 
D)  the lower the discount rate. 
A)  the greater the present value of a sum to be received a year in the future. 
B)  the greater the opportunity cost of another dollar of current consumption. 
C)  the more a dollar invested today will be worth a year from now. 
D)  the lower the discount rate.

Question 4

If your business earns $10,000 in revenues, has explicit costs of $8,000, and implicit costs of $5,000, your economic profit is

Accepted Answer

A)  $2,000. 
B)  -$3,000. 
C)  $5,000. 
D)  $3,000. 
A)  $2,000. 
B)  -$3,000. 
C)  $5,000. 
D)  $3,000.

Question 5

Numerically, the dominant type of business enterprise in the United States is

Accepted Answer

A)  the corporation. 
B)  the partnership. 
C)  the proprietorship. 
D)  the multinational corporation. 
A)  the corporation. 
B)  the partnership. 
C)  the proprietorship. 
D)  the multinational corporation.

Question 6

Economic profits are found by total revenues minus

Accepted Answer

A)  explicit costs. 
B)  explicit and implicit costs. 
C)  implicit costs. 
D)  all opportunity costs. 
A)  explicit costs. 
B)  explicit and implicit costs. 
C)  implicit costs. 
D)  all opportunity costs.

Question 7

Economic profits are

Accepted Answer

A)  total revenue minus explicit costs. 
B)  total revenue minus implicit costs. 
C)  total revenue minus explicit and implicit costs. 
D)  total revenue minus accounting costs. 
A)  total revenue minus explicit costs. 
B)  total revenue minus implicit costs. 
C)  total revenue minus explicit and implicit costs. 
D)  total revenue minus accounting costs.

Question 8

An advantage of a partnership over a proprietorship is

Accepted Answer

A)  limited liability. 
B)  that profits are not taxed twice. 
C)  the ability to take advantage of greater specialization. 
D)  that it is easier to dissolve. 
A)  limited liability. 
B)  that profits are not taxed twice. 
C)  the ability to take advantage of greater specialization. 
D)  that it is easier to dissolve.

Question 9

If a major league baseball player would be willing to work for $700,000 per year and is currently being paid $1,200,000 per year, that player is earning an annual economic rent of

Accepted Answer

A)  $700,000. 
B)  $1,900,000. 
C)  $1,200,000. 
D)  $500,000. 
A)  $700,000. 
B)  $1,900,000. 
C)  $1,200,000. 
D)  $500,000.

Question 10

"Economic rent reflects a waste of resources." Do you agree or disagree? Explain.

Accepted Answer

Disagree. Economic rent is indeed a paym

Question 11

When accounting profits are negative, economic profits

Accepted Answer

A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero. 
A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero.

Question 12

The concept of limited liability

Accepted Answer

A)  does not apply to a corporation. 
B)  means that the owners of a corporation have liability limited to the value of the shares in the firm. 
C)  means that owners of a firm are subject to double taxation. 
D)  limits the amount of specialization that can occur in a firm. 
A)  does not apply to a corporation. 
B)  means that the owners of a corporation have liability limited to the value of the shares in the firm. 
C)  means that owners of a firm are subject to double taxation. 
D)  limits the amount of specialization that can occur in a firm.

Question 13

If the interest rate is 4 percent per year and you borrow $100 for one year, at the end of the year you must pay back

Accepted Answer

A)  $96. 
B)  $100. 
C)  $104. 
D)  $4. 
A)  $96. 
B)  $100. 
C)  $104. 
D)  $4.

Question 14

Suppose the supply of ocean front property in San Diego is perfectly inelastic. Any increases in demand for this property increases the

Accepted Answer

A)  economic rent. 
B)  opportunity cost of land owners. 
C)  present discounted value. 
D)  real interest rate. 
A)  economic rent. 
B)  opportunity cost of land owners. 
C)  present discounted value. 
D)  real interest rate.

Question 15

Jorge is debating whether to concentrate on playing professional football or professional baseball. He is offered $6 million a year to play baseball and $8 million a year to play football. If he chooses to play football

Accepted Answer

A)  the economic rent in his salary is $8 million. 
B)  the economic rent in his salary is $6 million. 
C)  the economic rent in his salary is $2 million. 
D)  the economic rent in his salary is $14 million. 
A)  the economic rent in his salary is $8 million. 
B)  the economic rent in his salary is $6 million. 
C)  the economic rent in his salary is $2 million. 
D)  the economic rent in his salary is $14 million.

Question 16

The nominal rate of interest is 2% and the anticipated rate of inflation is 2%. What is the real rate of interest?

Accepted Answer

A)  4% 
B)  2% 
C)  -4% 
D)  0% 
A)  4% 
B)  2% 
C)  -4% 
D)  0%

Question 17

The present value of a sum to be received in the future is greater

Accepted Answer

A)  the greater the interest rate. 
B)  the less the time period before receiving the sum. 
C)  the greater the inflation rate. 
D)  the greater the discount rate. 
A)  the greater the interest rate. 
B)  the less the time period before receiving the sum. 
C)  the greater the inflation rate. 
D)  the greater the discount rate.

Question 18

A disadvantage of corporations over a proprietorship or partnership is in the

Accepted Answer

A)  legal liability. 
B)  ability to raise funds. 
C)  taxation system. 
D)  future of the firm when an owner dies. 
A)  legal liability. 
B)  ability to raise funds. 
C)  taxation system. 
D)  future of the firm when an owner dies.

Question 19

Unlimited liability is found in

Accepted Answer

A)  proprietorships and corporations. 
B)  partnerships and corporations. 
C)  proprietorships and partnerships. 
D)  proprietorships, partnerships, and corporations. 
A)  proprietorships and corporations. 
B)  partnerships and corporations. 
C)  proprietorships and partnerships. 
D)  proprietorships, partnerships, and corporations.

Question 20

Supermodel Linda Evangelista has been quoted as saying, "[I] don't wake up for less than $10,000 a day." If Ms. Evangelista is paid $15,000 for her next daylong photo shoot, then

Accepted Answer

A)  she is being paid $15,000 to cover her opportunity cost. 
B)  the first $10,000 she receives is economic rent to labor and the next $5,000 is more economic rent. 
C)  the entire $15,000 would be considered economic rent to labor. 
D)  she is receiving economic rent to labor equal to $5,000. 
A)  she is being paid $15,000 to cover her opportunity cost. 
B)  the first $10,000 she receives is economic rent to labor and the next $5,000 is more economic rent. 
C)  the entire $15,000 would be considered economic rent to labor. 
D)  she is receiving economic rent to labor equal to $5,000.

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

Which of the following is the formula used for computing economic profits?

Which of the following would be most likely to receive high economic rent payments?

The greater the interest rate

If your business earns $10,000 in revenues, has explicit costs of $8,000, and implicit costs of $5,000, your economic profit is

Numerically, the dominant type of business enterprise in the United States is

Economic profits are found by total revenues minus

Economic profits are

An advantage of a partnership over a proprietorship is

If a major league baseball player would be willing to work for $700,000 per year and is currently being paid $1,200,000 per year, that player is earning an annual economic rent of

"Economic rent reflects a waste of resources." Do you agree or disagree? Explain.

When accounting profits are negative, economic profits

The concept of limited liability

If the interest rate is 4 percent per year and you borrow $100 for one year, at the end of the year you must pay back

Suppose the supply of ocean front property in San Diego is perfectly inelastic. Any increases in demand for this property increases the

Jorge is debating whether to concentrate on playing professional football or professional baseball. He is offered $6 million a year to play baseball and $8 million a year to play football. If he chooses to play football

The nominal rate of interest is 2% and the anticipated rate of inflation is 2%. What is the real rate of interest?

The present value of a sum to be received in the future is greater

A disadvantage of corporations over a proprietorship or partnership is in the

Unlimited liability is found in

Supermodel Linda Evangelista has been quoted as saying, "[I] don't wake up for less than $10,000 a day." If Ms. Evangelista is paid $15,000 for her next daylong photo shoot, then

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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