ECON STUDY QUESTIONS AND ANSWERS
Updated: Aug 12, 2022
Multiple Choice Questions
Suppose that you could either prepare your own tax return in 15 hours or hire a tax specialist to prepareit for you in 2 hours.You value your time at $11.00 anhour; the tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is
A. $275. B. $55. C. $110. D. $165.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Implicit costs are
the same as economic costs.
comprised entirely of actual expenses paid by the firm for its inputs.
C. opportunity costs of self-employed resources.
D. always greater than accounting costs.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Cash expenditures a firm incursto pay for resourcesare called
A. implicit costs.
B. explicit costs.
normal profit.
opportunity costs.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Which of the following would be an implicitcost for a firm? The cost
of worker wages and salaries for the firm.
paid for leasing a buildingfor the firm.
paid for production supplies for the firm.
D. of wages forgone by the owner of the firm.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
206.
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talentor forgone entrepreneurial income to be $5,000 a year. To start the business,he cashed in $100,000in bonds that earned 10 percent interest annually to buy a softwarecompany, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.
The total revenuesof Harvey's firm in the first year were
A. $220,000. B. $105,000. C. $605,000. D. $825,000.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
207.
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talentor forgone entrepreneurial income to be $5,000 a year. To start the business,he cashed in $100,000in bonds that earned 10 percent interest annually to buy a softwarecompany, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employeewages and benefits, and rent on a building.
The explicitcosts of Harvey's firm in the first year were
A. $755,000. B. $605,000. C. $705,000. D. $825,000.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
208.
Harvey quit his job at State University, where he earned $45,000 a year. He figureshis entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business,he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a softwarecompany, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.
The implicit costs of Harvey's firm in the first year were
A. $50,000. B. $60,000. C. $100,000. D. $150,000.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
209.
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talentor forgone entrepreneurial income to be $5,000 a year. To start the business,he cashed in $100,000in bonds that earned 10 percent interest annually to buy a softwarecompany, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employeewages and benefits, and rent on a building.
The normal profits for Harvey in the first year were
A. $5,000. B. $160,000. C. $220,000. D. $150,000.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
210.
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talentor forgone entrepreneurial income to be $5,000 a year. To start the business,he cashed in $100,000in bonds that earned 10 percent interest annually to buy a softwarecompany, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.
The economic profits of Harvey's firm in the first year were
A. $70,000. B. $160,000. C. $220,000. D. $280,000.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Economic costs are equal to
the opportunity costs of all resources owned by the firm.
actual expenses paid by the firm for all of its inputs.
C. the sum of all explicit costs and implicit costs.
D. accounting costs.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Economic profits are
always larger than accounting profits.
the sum of accountingprofits and implicit costs.
equal to the difference between total revenues and implicit costs.
D. equal to the difference between accounting profits and implicit costs.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
If economic profits in an industry are zero and implicit costs are greater than zero, then
resources will move out of the industry.
there will be no production in the short run.
C. accounting profits are greater than zero.
D. new firms will enter the industry.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
If a firm's revenues just cover all its implicitcosts, then
A. normalprofit is zero.
B. economic profit is zero.
total revenues equal its explicit costs.
total revenues equal its implicit costs.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
An industry is expected to expand if firms in the industry are earningpositive
A. normal profits.
B. economicprofits.
accounting profits.
total revenues.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Suppose a firm sells its productat a price lower than the per-unit implicit costs of producingit. Which of the followingstatements is definitely true?
The firm will earn positiveaccounting and economic profits.
The firm will face accounting and economic losses.
The firm will face an accountingloss but earn positiveeconomic profits.
D. The firm may earn positive accounting profits but will face economic losses.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Normal profits are
the profits reported by accountants on a firm's annual financialstatement.
identical to economic profits.
determined by subtracting totalcosts from total revenues.
D. considered an implicitcost by economists.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Suppose that a firm produces200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicitcosts of production are $300,000. The firm earns an accounting profit of
A. $500,000 and an economic profit of $200,000.
$2,000,000 and an economic profit of $200,000.
$200,000 and an economic profit of $2,000,000.
$200,000 and an economic profit of $500,000.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
The sole proprietor of the Milwaukee Machine Company receivesall accounting profits earned by her firm. She has a standingsalary offer of $35,000 a year towork for a large corporation. If she had investedher capital outside her own company,she estimates that would have returned $22,000 this year. If accounting profits for the year were $50,000,then her economic profits
were (basedsolely on the given figures)
A. $107,000. B. −$7,000. C. $ 57,000. D. $50,000.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Zero economic profits mean that the firm is earning
revenues that just cover all of its actual expenses.
accounting profits that are equal to its accounting costs.
C. the same amount of accountingprofits as what it would have earnedelsewhere.
D. revenues that are equal to its accounting profits.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
In the short run, totaloutput in an industry
A. is fixed at a specificlevel.
B. can vary as the resultof using a fixed amount of plant and equipment more or lessintensively.
may be altered by varying the size of plant and equipmentwhich now exist in the industry.
can vary as the result of new firms entering or leaving the industry.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
The main difference between the short run and the long run is that
firms earn zero profitsin the long run.
the long run always refers to a time period of one year or longer.
C. in the short run, some inputs are fixed and some are variable.
D. in the long run, all inputs are fixed.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Which of the followingstatements is false?
A. The short run refers to a period of less than one year.
In the long run, all inputs can vary in quantity.
Firms may continueoperating at a loss in the short run.
In the long run, firms would not continue operating at a loss.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
The long run is a period of time, or a time frame, in which
all resources are fixed in quantity.
the level of output is variable.
C. the amount of all resources can be varied.
D. the capacity of the production plant is fixed.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly-line basis?
an increasein the amount of steel that the firm buys
a decrease in the number of production workers in the assembly line
C. a switch in production to a redesigned and retooledfacility
D. an increasein the number of shifts of workers from two to three
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Marginal product of laborrefers to the
A. last unit of output produced by labor at the end of each period.
B. increase in output resulting from employing one more unit of labor.
total output divided by the number of labor employed.
smallest unit of the output produced by labor.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
According to the law of diminishing marginal returns,
output will fall and then rise as additional units of input are employed.
employing additional inputs will diminish total output.
C. the additional output generated by additional units of an input will diminish.
D. the additional inputs necessary to produce an additional unit of output will diminish.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
Which of the following statements is true?
A. Diminishing marginal returns means thattotal output decreases as more of the variableinputs are employed.
B. Diminishing marginal returns means that in order to increaseoutput at a constantrate, the firm must add larger and larger quantities of the variable inputs.
Diminishing marginal returns implies that there will never be increasing returns to scale.
Diminishing marginal returns implies that the firm's profits willbe shrinking as it produces more of its product.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
Diminishing marginal returns occurs as a firm adds more variable inputs to at least one fixed input because
the ability or quality of the variableinputs hired decreasesas more of them are hired.
the firm must lower the price of its product when it produces more units of output.
the per unit cost it must pay for variable inputs increases as more inputs are hired.
D. as more variable inputs are hired, the amount of the fixed input per unit of variable input decreases.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
The law of diminishing returns in a manufacturing plant of a fixed capacityimplies that, eventually, employing one
A. more worker will increase the average amount of output per worker.
B. more workerwill decrease the averageamount of outputper worker.
fewer worker will decrease the average amount of output per worker.
fewer worker will not affect the average amount of output per worker.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
The law of diminishing returns only appliesin cases where
there is increasing scarcityof factors of production.
the price of extra units of a factor is increasing.
C. there is at least one fixed factor of production.
D. capital is a variable input.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
Which statement best illustrates the law of diminishing returns from studying?
A. As hours of studying decrease, the student’s GPA will also diminish.
B. As study hours increase, the amount of learningwill increase at a diminishing rate.
Students with higher GPAs tend to study fewer hours on the night before a big exam.
Students who cram the night before a big exam do not show much improvement in their learning.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
The total product curve graphically shows how much
profit the firm will earn at various levels of production.
output the firm will produce at various prices of its product.
the costs of production will be as the firm changes its total production level.
D. output the firm can produce with various quantities of its variableinput.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
When a bakerymanager reports that at her bakery, productivity of her 15 workers last month was1,800 loaves per worker, she is referring to the
A. total product of labor.
B. average product of labor.
marginal product of labor.
total product of capital.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
When the total product curve is falling, the
A. marginal product of labor is zero.
B. marginalproduct of labor is negative.
average product of laboris increasing.
average product of labor must be negative.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
Over the range of positive, but diminishing, marginal returns for an input, the total product curve
falls.
rises at a constant rate.
C. rises at a decreasing rate.
D. rises at an increasing rate.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
At the Amarillo Piano Company, the average product of labor stays constantat 5, regardless of how much labor is employed. This implies that
there are no fixed costs.
this firm can never maximize its profits.
C. the marginalproduct of laboris constant.
D. laborexhibits diminishing marginal returns.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
At what point does marginal product equal average product?
A. where average product is equal toits minimum value
B. where average product is equal to its maximum value
where marginal product is equal to its minimum value
where marginal product is equal to its maximum value
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
At the point where diminishing marginal returns of an input sets in, the
A. average product starts to decrease.
B. marginal productstarts to decrease.
total product starts to decrease.
average product exceeds the marginal product.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
The question is based on the following table, which providesinformation on the production of a productthat requires one variable input.
Input
Total Product
0
0
1
5
2
20
3
32
4
42
5
50
6
55
7
58
8
58
9
56
With the addition of the second unit of input, the marginal product is
15 and the averageproduct is 20.
25 and the average product is 10.
C. 15 and the average product is 10.
D. 10 and the average product is 15.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
241.
The question is based on the following table, which providesinformation on the production of a productthat requires one variable input.
Input
Total Product
0
0
1
5
2
20
3
32
4
42
5
50
6
55
7
58
8
58
9
56
Marginal product is largest for the
A. second unit of variable input.
third unit of variable input.
seventh unit of variableinput.
ninth unit of variable input.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
242.
The question is based on the following table, which providesinformation on the production of a productthat requires one variable input.
Input
Total Product
0
0
1
5
2
20
3
32
4
42
5
50
6
55
7
58
8
58
9
56
Diminishing marginal returns sets in with the additionof the
first unit of input.
second unit of input.
C. third unit of input.
D. fourth unit of input.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
243.
This question is based on the following table, which providesinformation on the production of a productthat requires one variable input.
Input
Total Product
0
0
1
5
2
20
3
32
4
42
5
50
6
55
7
58
8
58
9
56
There are negative marginal returns when the
fifth unit of input is added.
sixth unit of input is added.