860 ? Chapter 13/The Costs of Production
12. Profit is defined as
a. net revenue minus depreciation. b. total revenue minus total cost.
c. average revenue minus average total cost. d. marginal revenue minus marginal cost.
ANS: B DIF: LOC: Costs of production 1 REF: 13-1 TOP: Profit NAT: Analytic MSC: Definitional
13. Profit is defined as total revenue
a. plus total cost. b. times total cost. c. minus total cost. d. divided by total cost.
ANS: C DIF: LOC: Costs of production 1 REF: 13-1 TOP: Profit NAT: Analytic MSC: Definitional
14. Which of the following can be added to profit to obtain total revenue?
a. net profit b. capital profit c. operational profit d. total cost
ANS: D DIF: LOC: Costs of production MSC: Analytical
2 REF: 13-1 NAT: Analytic TOP: Total revenue
15. If Kelsey sells 300 glasses of lemonade at $0.50 each, her total revenues are
a. $150. b. $299.50. c. $300. d. $600.
ANS: A DIF: LOC: Costs of production MSC: Analytical
2 REF: 13-1 NAT: Analytic TOP: Total revenue
16. If Amanda sells 200 glasses of lemonade at $0.50 each, her total revenues are
a. $100. b. $199.50. c. $200. d. $400.
ANS: A DIF: LOC: Costs of production MSC: Analytical
2 REF: 13-1 NAT: Analytic TOP: Total revenue
17. Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are
a. $25. b. $124.50. c. $125. d. $150.
ANS: A DIF: LOC: Costs of production 2 REF: 13-1 TOP: Profit NAT: Analytic MSC: Analytical
18. Zoe sells 200 glasses of lemonade at $0.50 each. Her total costs are $25. Her profits are
a. $25. b. $75. c. $100. d. $175.
ANS: B DIF: LOC: Costs of production 2 REF: 13-1 TOP: Profit NAT: Analytic MSC: Analytical
Chapter 13/The Costs of Production ? 861
19. XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of
production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $95. Total profit for the XYZ corporation would be a. -$3,875. b. $26,125. c. $28,500. d. $30,000.
ANS: A DIF: LOC: Costs of production 2 REF: 13-1 TOP: Profit NAT: Analytic MSC: Applicative
20. Those things that must be forgone to acquire a good are called
a. implicit costs. b. opportunity costs. c. explicit costs. d. accounting costs.
ANS: B DIF: LOC: Costs of production MSC: Definitional
1 REF: 13-1 NAT: Analytic TOP: Opportunity cost
21. Gordon is a senior majoring in computer network development at Smart State University. While he has been
attending college, Gordon started a computer consulting business to help senior citizens set up their network connections and teach them how to use e-mail. Gordon charges $25 per hour for his consulting services. Gordon also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Gordon $20 per hour. From this information we can conclude: a. Gordon should increase the number of hours he works for the Economics Department to make it
comparable to his consulting business income.
b. Gordon is obviously not maximizing his well-being if he continues to work for the Economics
Department.
c. If Gordon chooses one hour at the beach with his friends rather than spend one more hour with a
consulting client, the forgone income of $25 is considered a cost of the choice to go to the beach. d. Both b and c are correct
ANS: C DIF: LOC: Costs of production MSC: Analytical
2 REF: 13-1 NAT: Analytic TOP: Opportunity cost
22. A firm's opportunity costs of production are equal to its
a. explicit costs only. b. implicit costs only.
c. explicit costs + implicit costs.
d. explicit costs + implicit costs + total revenue.
ANS: C DIF: LOC: Costs of production MSC: Definitional
1 REF: 13-1 NAT: Analytic TOP: Opportunity cost
23. Susan used to work as a telemarketer, earning $25,000 per year. She gave up that job to start a catering
business. In calculating the economic profit of her catering business, the $25,000 income that she gave up is counted as part of the catering firm's a. total revenue. b. opportunity costs. c. explicit costs. d. marginal costs.
ANS: B DIF: LOC: Costs of production MSC: Interpretive
1 REF: 13-1 NAT: Analytic TOP: Opportunity cost
862 ? Chapter 13/The Costs of Production
24. John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport
the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is John's annual opportunity cost of the financial capital that has been invested in the business? a. $30 b. $140 c. $170 d. $300
ANS: C DIF: LOC: Costs of production MSC: Analytical
3 REF: 13-1 NAT: Analytic TOP: Opportunity cost
25. Gavin has decided to start his own snow removal business. To purchase the necessary equipment, Gavin
withdrew $2,000 from his savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gavin's annual opportunity cost of the financial capital that has been invested in the business? a. $60 b. $280 c. $340 d. $660
ANS: C DIF: LOC: Costs of production MSC: Analytical
2 REF: 13-1 NAT: Analytic TOP: Opportunity cost
26. Dianne has decided to start her own photography studio. To purchase the necessary equipment, Dianne
withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Dianne's annual opportunity cost of the financial capital that has been invested in the business? a. $300 b. $400 c. $700 d. $1,650
ANS: C DIF: LOC: Costs of production MSC: Analytical
2 REF: 13-1 NAT: Analytic TOP: Opportunity cost
27. The value of a business owner's time is an example of
a. an opportunity cost. b. a fixed cost. c. an explicit cost. d. total revenue.
ANS: A DIF: LOC: Costs of production MSC: Interpretive
1 REF: 13-1 NAT: Analytic TOP: Opportunity cost
28. An example of an opportunity cost that is also an implicit cost is
a. a lease payment.
b. the cost of raw materials.
c. the value of the business owner’s time. d. All of the above are correct.
ANS: C DIF: LOC: Costs of production MSC: Interpretive
1 REF: 13-1 NAT: Analytic TOP: Opportunity cost
Chapter 13/The Costs of Production ? 863
29. Which of the following statements is correct?
a. Opportunity costs equal explicit minus implicit costs.
b. Economists consider opportunity costs to be included in a firm’s total revenues. c. Economists consider opportunity costs to be included in a firm’s costs of production. d. All of the above are correct.
ANS: C DIF: LOC: Costs of production MSC: Interpretive
2 REF: 13-1 NAT: Analytic TOP: Opportunity cost
30. Explicit costs
a. require an outlay of money by the firm. b. include all of the firm's opportunity costs.
c. include income that is forgone by the firm's owners. d. Both b and c are correct.
ANS: A
MSC: Definitional
DIF:
1 REF: 13-1 TOP: Explicit costs
31. Which of the following would be an example of an implicit cost? (i) forgone investment opportunities (ii) wages of workers (iii) raw materials costs
a.
b. c. d. (i) only (ii) only
(ii) and (iii) only (i) and (iii) only
2
REF: 13-1 NAT: Analytic TOP: Implicit costs
ANS: A DIF:
LOC: Costs of production MSC: Interpretive
32. Implicit costs
a. do not require an outlay of money by the firm.
b. do not enter into the economist's measurement of a firm's profit. c. are also known as variable costs.
d. are not part of an economist’s measurement of opportunity cost.
ANS: A DIF: LOC: Costs of production MSC: Interpretive
2 REF: 13-1 NAT: Analytic TOP: Implicit costs
33. An example of an explicit cost of production would be the
a. cost of forgone labor earnings for an entrepreneur.
b. lost opportunity to invest in capital markets when the money is invested in one's business. c. lease payments for the land on which a firm’s factory stands. d. Both a and c are correct.
ANS: C DIF: LOC: Costs of production MSC: Interpretive
2 REF: 13-1 NAT: Analytic TOP: Explicit costs
864 ? Chapter 13/The Costs of Production
34. Which of the following is an example of an implicit cost? (i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street
brokerage firm (ii) interest paid on the firm's debt (iii) rent paid by the firm to lease office space
a.
b. c. d. (ii) and (iii) only (i) and (iii) only (i) only (iii) only
2
REF: 13-1 NAT: Analytic TOP: Implicit costs
ANS: C DIF:
LOC: Costs of production MSC: Interpretive
35. John owns a shoe-shine business. His accountant most likely includes which of the following costs on his
financial statements?
a. wages John could earn washing windows
b. dividends John's money was earning in the stock market before John sold his stock and bought a
shoe-shine booth c. the cost of shoe polish d. Both b and c are correct.
ANS: C DIF: LOC: Costs of production MSC: Interpretive
2 REF: 13-1 NAT: Analytic TOP: Explicit costs
36. The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is
a. an explicit cost. b. an accounting cost c. an implicit cost.
d. forgone accounting profit.
ANS: C DIF: LOC: Costs of production MSC: Interpretive
2 REF: 13-1 NAT: Analytic TOP: Implicit costs
37. Explicit costs
a. do not require an outlay of money by the firm.
b. enter into the accountant's measurement of a firm's profit. c. enter into the economist's measurement of a firm's profit. d. Both b and c are correct.
ANS: D DIF: LOC: Costs of production MSC: Interpretive
1 REF: 13-1 NAT: Analytic TOP: Explicit costs
38. Which of the following is an example of an implicit cost?
a. salaries paid to owners who work for the firm
b. interest on money borrowed to finance equipment purchases c. cash payments for raw materials
d. foregone rent on office space owned and used by the firm
ANS: D DIF: LOC: Costs of production MSC: Interpretive
1 REF: 13-1 NAT: Analytic TOP: Implicit costs