Chapter 13 Test Bank final PDF

Preview

Summary

Download Chapter 13 Test Bank final PDF

Description

Chapter 13 The Costs of Production MULTIPLE CHOICE 1. Analyzing the behavior of the firm enhances our understanding of a. what decisions lie behind the market supply curve. b. how consumers allocate their income to purchase scarce resources. c. how financial institutions set interest rates. d. whether resources are allocated fairly. ANS: A PTS: 1 DIF: 1 REF: 13-0 NAT: Analytic LOC: Costs of production TOP: Supply curve MSC: Applicative 2. A student might describe information about the costs of production as a. dry and technical. b. boring. c. crucial to understanding firms and market structures. d. All of the above could be correct. ANS: D PTS: 1 DIF: 1 REF: 13-0 NAT: Analytic LOC: Costs of production TOP: Supply curve MSC: Interpretive 3. A student might describe information about the costs of production as a. exciting and fresh. b. unimportant for understanding market structure. c. dry and technical. d. vibrant and enthralling. ANS: C PTS: 1 DIF: 1 REF: 13-0 NAT: Analytic LOC: Costs of production TOP: Supply curve MSC: Interpretive 4. Which field of economics studies how the number of firms affects the prices in a market and the efficiency of market outcomes? a. macroeconomics b. industrial organization c. labor economics d. monetary economics ANS: B PTS: 1 DIF: 1 REF: 13-0 NAT: Analytic LOC: Costs of production TOP: Industrial organization MSC: Definitional 5. Economists in the field of industrial organization study how a. central banking policies affect financial markets. b. firms’ demand for labor and individuals’ supply of labor affect resource markets. c. firms’ decisions about prices and quantities depend on market conditions. d. externalities and public goods affect the environment. ANS: C PTS: 1 DIF: 1 REF: 13-0 NAT: Analytic LOC: Costs of production TOP: Industrial organization MSC: Definitional

6. Industrial organization is the study of how a. labor unions organize workers in industries. b. profitable firms are in organized industries. c. industries organize for political advantage. d. firms' decisions regarding prices and quantities depend on the market conditions they face. ANS: D PTS: 1 DIF: 1 REF: 13-0 NAT: Analytic LOC: Costs of production TOP: Industrial organization MSC: Definitional 7. To an economist, the field of industrial organization answers which of the following que stions? a. Why are consumers subject to the law of demand? b. Why do firms experience diminishing marginal products of inputs? c. How does the number of firms affect prices and the efficiency of market outcomes? d. Why do firms consider production costs when determining product supply? ANS: C PTS: 1 DIF: 1 REF: 13-0 NAT: Analytic LOC: Costs of production TOP: Industrial organization MSC: Definitional WHAT ARE COSTS? 1. Economists assume that the typical person who starts her own business does so with the intention of a. donating the profits from her business to charity. b. capturing the highest number of sales in her industry. c. maximizing profits. d. minimizing costs. ANS: C PTS: 1 DIF: 1 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Profit maximization MSC: Applicative 2. Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii) ANS: C PTS: 1 DIF: 2 NAT: Analytic LOC: Costs of production MSC: Interpretive

REF: 13-1 TOP: Profit maximization

3. Economists normally assume that the goal of a firm is to earn (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii), and (iii) ANS: A PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Profit maximization MSC: Interpretive

4. An entrepreneur’s motivation to start a business arises from 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. ANS: D PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Profit maximization MSC: Interpretive 5. Economists normally assume that the goal of a firm is to a. maximize its total revenue. b. maximize its profit. c. minimize its explicit costs. d. minimize its total cost. ANS: B PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Definitional 6. Economists assume that the goal of the firm is to maximize total a. revenue. b. profits. c. costs. d. satisfaction. ANS: B PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Interpretive

REF: 13-1 TOP: Profit maximization

REF: 13-1 TOP: Profit maximization

7. When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision? a. The cost of something is what you give up to get it. b. A country's standard of living depends on its ability to produce goods and services. c. Prices rise when the government prints too much money. d. Governments can sometimes improve market outcomes. ANS: A PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Profit maximization MSC: Interpretive 8. The amount of money that a firm receives from the sale of its output is called a. total gross profit. b. total net profit. c. total revenue. d. net revenue. ANS: C PTS: 1 DIF: 1 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Definitional 9. Total revenue equals a. price x quantity. b. price/quantity. c. (price x quantity) - total cost. d. output - input. ANS: A PTS: 1 DIF: NAT: Analytic LOC: Costs of production MSC: Definitional

1

REF: 13-1 TOP: Total revenue

10. 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 PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Analytical 11. If Darren sells 300 glasses of iced tea at $0.50 each, his total revenues are a. $150. b. $299.50. c. $300. d. $600. ANS: A PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Analytical 12. If Tanya sells 200 glasses of fruit punch at $0.50 each, her total revenues are a. $100. b. $199.50. c. $200. d. $400. ANS: A PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Analytical 13. Cody builds mailboxes. If he charges $20 for each mailbox, his total revenue will be a. $1,000 if he sells 100 mailboxes. b. $500 if he sells 25 mailboxes. c. $20 regardless of how many mailboxes he sells. d. $200 if he sells 5 mailboxes. ANS: B PTS: 1 DIF: 1 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Applicative 14. The Big Box corporation produced and sold 500 units of output. The average cost of production per unit was $50. Each unit sold for a price of $65. The Big Box corporation’s total revenues are a. $7,500. b. $25,000. c. $32,500. d. $67,500. ANS: C PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Applicative 15. Trevor’s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor’s Tire Company’s total costs are a. $7,500. b. $25,000. c. $32,500. d. $67,500. ANS: B PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Applicative

16. Trevor’s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor’s Tire Company’s total profits are a. $7,500. b. $25,000. c. $32,500. d. $67,500. ANS: A PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Applicative 17. A certain firm manufactures and sells computer chips. Last year it sold 2 million chips at a price of $10 per chip. For last year, the firm's a. accounting profit was $20 million. b. economic profit was $20 million. c. total revenue was $20 million. d. explicit costs was $20 million. ANS: C PTS: 1 DIF: 1 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Applicative 18. A certain firm produces and sells potato chips. Last year it sold 3 million bags of chips at a price of $3 per bag. For last year, the firm's a. accounting profit was $9 million. b. economic profit was $9 million. c. total revenue was $9 million. d. explicit costs was $9 million. ANS: C PTS: 1 DIF: 1 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total revenue MSC: Applicative 19. The amount of money that a firm pays to buy inputs is called a. total cost. b. variable cost. c. marginal cost. d. fixed cost. ANS: A PTS: 1 DIF: 2 NAT: Analytic LOC: Costs of production MSC: Definitional

REF: 13-1 TOP: Total cost

20. Total cost is the a. amount a firm receives for the sale of its output. b. fixed cost less variable cost. c. market value of the inputs a firm uses in production. d. quantity of output minus the quantity of inputs used to make a good. ANS: C PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Total cost MSC: Definitional 21. 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 PTS: 1 DIF: NAT: Analytic LOC: Costs of production MSC: Definitional

1

REF: 13-1 TOP: Profit

22. 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 PTS: 1 DIF: NAT: Analytic LOC: Costs of production MSC: Definitional

1

REF: 13-1 TOP: Profit

23. Daphne 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 PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Profit MSC: Analytical 24. Joy sells 200 glasses of iced tea at $0.50 each. Her total costs are $25. Her profits are a. $25. b. $75. c. $100. d. $175. ANS: B PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Profit MSC: Analytical 25. Billy’s Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy’s Bean Bag Emporium would be a. -$3,875. b. $26,125. c. $28,500. d. $30,000. ANS: A PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Profit MSC: Applicative 26. The 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 PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Definitional 27. 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 PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Definitional

REF: 13-1 TOP: Opportunity cost

REF: 13-1 TOP: Opportunity cost

28. Wiladee used to work as an office manager, earning $25,000 per year. She gave up that job to start a tailoring business. In calculating the economic profit of her tailoring business, the $25,000 income that she gave up is counted as part of the tailoring firm's a. total revenue. b. opportunity costs. c. explicit costs. d. marginal costs. ANS: B PTS: 1 DIF: 1 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Opportunity cost MSC: Interpretive 29. 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 PTS: 1 DIF: 3 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Opportunity cost MSC: Analytical 30. Gloria has decided to start her own snow removal business. To purchase the necessary equipment, Gloria withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gloria'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 PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Opportunity cost MSC: Analytical 31. Zach has decided to start his own photography studio. To purchase the necessary equipment, Zach withdrew $10,000 from his savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Zach'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 PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Opportunity cost MSC: Analytical 32. 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 PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Interpretive

REF: 13-1 TOP: Opportunity cost

33. 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 PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Interpretive

REF: 13-1 TOP: Opportunity cost

34. 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 PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Opportunity cost MSC: Interpretive 35. Explicit costs a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include the value of the business owner’s time. d. Both b and c are correct. ANS: A PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Definitional

REF: 13-1 TOP: Explicit costs

36. 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 PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Explicit costs MSC: Interpretive 37. Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? a. wages Pete could earn washing windows b. dividends Pete's money was earning in the stock market before Pete sold his stock and bought a shoe-shine booth c. the cost of shoe polish d. Both b and c are correct. ANS: C PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Explicit costs MSC: Interpretive

38. Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete’s money was earning before he spent his savings to set up the shoe-shine business a. (i) only b. (i) and (ii) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv) ANS: B PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Explicit costs MSC: Interpretive 39. 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 PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Interpretive

REF: 13-1 TOP: Explicit costs

40. A difference between explicit and implicit costs is that a. explicit costs must be greater than implicit costs. b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. d. implicit costs must be greater than explicit costs. ANS: C PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Explicit costs | Implicit costs MSC: Interpretive 41. 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. (i) only b. (ii) only c. (ii) and (iii) only d. (i) and (iii) only ANS: A PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Implicit costs MSC: Interpretive

42. Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete’s money was earning before he spent his savings to set up the shoe-shine business a. (i) and (ii) only b. (iv) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv) ANS: C PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Implicit costs MSC: Interpretive 43. 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 PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Implicit costs MSC: Interpretive 44. Which of the following is an example of an implicit cost? the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street (i) brokerage firm (ii) interest paid on the firm's debt (iii) rent paid by the firm to lease office space a. (ii) and (iii) only b. (i) and (iii) only c. (i) only d. (iii) only ANS: C PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Implicit costs MSC: Interpretive 45. 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 PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Implicit costs MSC: Interpretive 46. 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 PTS: 1 DIF: 1 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Implicit costs MSC: Interpretive

47. Foregone investment opportunities are an example of a. an explicit cost. b. an implicit cost. c. revenues. d. profits. ANS: B PTS: 1 DIF: 1 NAT: Analytic LOC: Costs of production MSC: Definitional

REF: 13-1 TOP: Implicit costs

48. Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business? a. $-55,000 b. $-5,000 c. $5,000 d. $20,000 ANS: C PTS: 1 DIF: 2 REF: 13-1 NAT: Analytic LOC: Costs of production TOP: Economic profit MSC: Analytical 49. Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn’t opened her ow...