Question 1

Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm.

Accepted Answer

A) True 
 B)False

Question 2

Economists and accountants both include forgone income as a cost to a small business owner.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following expressions is correct?

Accepted Answer

A)  accounting profit = total revenue - explicit costs 
B)  economic profit = total revenue - implicit costs 
C)  economic profit = total revenue - explicit costs 
D)  Both a and b are correct.

Question 4

An entrepreneur's motivation to start a business arises from

Accepted Answer

A)  an innate love for the type of business that he or she starts. 
B)  a desire to earn a profit. 
C)  an altruistic desire to provide the world with a good product. 
D)  All of the above could be correct.

Question 5

Table 13-12
Betty's Bakery
 
-Refer to Table 13-12.What is the fixed cost of production at Betty's Bakery?

Accepted Answer

A)  $12 
B)  $20 
C)  $25 
D)  $51

Question 6

Table 13-7
The Flying Elvis Copter Rides
 
-Refer to Table 13-7.What is the value of M?

Accepted Answer

A)  $50 
B)  $140 
C)  $360 
D)  $410

Question 7

Scenario 13-9
Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can create one photo frame in an hour. She earns $10 per hour at a part-time job at the local coffee shop. She can sell a photo frame for $30 each.
-Refer to Scenario 13-9.An accountant would calculate the total profit for one photo frame to be

Accepted Answer

A)  $10. 
B)  $15. 
C)  $20. 
D)  $25.

Question 8

If a firm produces nothing,which of the following costs will be zero?

Accepted Answer

A)  total cost 
B)  fixed cost 
C)  opportunity cost 
D)  variable cost

Question 9

Table 13-16
Listed in the table are the long-run total costs for three different firms.
 
-Refer to Table 13-16.Firm A is experiencing constant returns to scale.

Accepted Answer

A) True 
 B)False

Question 10

Implicit costs are costs that do not require an outlay of money by the firm.

Accepted Answer

A) True 
 B)False

Question 11

Katherine gives piano lessons for $20 per hour.She also grows flowers,which she arranges and sells at the local farmer's market.One day she spends 5 hours planting $50 worth of seeds in her garden.Once the seeds have grown into flowers,she can sell them for $150 at the farmer's market.Katherine's accounting profits are

Accepted Answer

A)  $100, and her economic profits are $100. 
B)  $100, and her economic profits are $0. 
C)  $0, and her economic profits are $100. 
D)  $0, and her economic profits are $-100.

Question 12

Diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases.

Accepted Answer

A) True 
 B)False

Question 13

Table 13-11
Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month.
 
-Refer to Table 13-11.What is the average variable cost for the month if 6 instructional modules are produced?

Accepted Answer

A)  $180.00 
B)  $533.33 
C)  $700.00 
D)  $713.33

Question 14

Figure 13-7
 
-Refer to Figure 13-7.Which of the figures represents the marginal cost curve for a typical firm?

Accepted Answer

A)  Figure 1 
B)  Figure 2 
C)  Figure 3 
D)  Figure 4

Question 15

Which of the following can be added to profit to obtain total revenue?

Accepted Answer

A)  net profit 
B)  capital profit 
C)  operational profit 
D)  total cost

Question 16

Diseconomies of scale often arise because higher production levels allow specialization among workers.

Accepted Answer

A) True 
 B)False

Question 17

A firm that wants to achieve economies of scale could do so by

Accepted Answer

A)  assigning limited tasks to its employees, so they can master those tasks. 
B)  employing a smaller number of workers. 
C)  producing a smaller quantity of output. 
D)  producing an output level higher than the efficient scale.

Question 18

Scenario 13-15
Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs.
-Refer to Scenario 13-15.What is the shape of Farmer Jack's marginal cost curve?

Accepted Answer

A)  upward sloping 
B)  downward sloping 
C)  U-shaped 
D)  constant

Question 19

Thirsty Thelma owns and operates a small lemonade stand.When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized.Because she can easily put her idle resources to use,

Accepted Answer

A)  the marginal cost of an extra worker is large. 
B)  the marginal cost of one more glass of lemonade is smaller than if output were high. 
C)  the marginal product of an extra worker is small. 
D)  her lemonade stand is likely to be crowded with workers.

Question 20

Scenario 13-7
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each.
-Refer to Scenario 13-7.What are Wanda's total economic profits?

Accepted Answer

A)  $150 
B)  $126 
C)  $96 
D)  $54

Exam 13: The Costs of Production.

Economists and accountants usually disagree on the inclusion of implicit costs into the cost analysis of a firm.

Economists and accountants both include forgone income as a cost to a small business owner.

Which of the following expressions is correct?

An entrepreneur's motivation to start a business arises from

Table 13-12 Betty's Bakery -Refer to Table 13-12.What is the fixed cost of production at Betty's Bakery?

Table 13-7 The Flying Elvis Copter Rides -Refer to Table 13-7.What is the value of M?

If a firm produces nothing,which of the following costs will be zero?

Table 13-16 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-16.Firm A is experiencing constant returns to scale.

Implicit costs are costs that do not require an outlay of money by the firm.

Diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases.

Figure 13-7 -Refer to Figure 13-7.Which of the figures represents the marginal cost curve for a typical firm?

Which of the following can be added to profit to obtain total revenue?

Diseconomies of scale often arise because higher production levels allow specialization among workers.

A firm that wants to achieve economies of scale could do so by

Thirsty Thelma owns and operates a small lemonade stand.When Thelma is producing a low quantity of lemonade she has few workers and her equipment is not being fully utilized.Because she can easily put her idle resources to use,