Question 1

A firm's goal is to maximize normal profit.

Accepted Answer

A) True 
 B)False

Question 2

Suppose Angelo Sessa, owner of Sezz Medi Brick Oven Pizza in NYC, earns $350,000 in revenue per year. He spends $800 a month on ash wood for his stove, $2000 a month on rent, and $1500 a month on ingredients. He used to be a lawyer and earned $240,000 a year before he opened up Sezz Medi. Normal profit for a pizza business is $30,000. What is Angelo's economic profit?

Accepted Answer

A)  $28,400 
B)  $350,000 
C)  $58,400 
D)  $268,400 
A)  $28,400 
B)  $350,000 
C)  $58,400 
D)  $268,400

Question 3

A firm with a sales department, a production department, and a marketing department provides an example of

Accepted Answer

A)  team production. 
B)  joint production. 
C)  economies of scale. 
D)  economies of different departments. 
A)  team production. 
B)  joint production. 
C)  economies of scale. 
D)  economies of different departments.

Question 4

The air travel market, which is dominated by a few large firms, is an example of

Accepted Answer

A)  a monopoly market. 
B)  an oligopolistic market. 
C)  a perfectly competitive market. 
D)  a monopolistically competitive market. 
A)  a monopoly market. 
B)  an oligopolistic market. 
C)  a perfectly competitive market. 
D)  a monopolistically competitive market.

Question 5

Paul and Wayne are starting a consulting firm together. Their liability is limited; therefore, their firm is an example of a

Accepted Answer

A)  partnership. 
B)  proprietorship. 
C)  corporation. 
D)  None of the above answers is correct. 
A)  partnership. 
B)  proprietorship. 
C)  corporation. 
D)  None of the above answers is correct.

Question 6

Which of the following statements is correct?

Accepted Answer

A)  Technological efficiency depends on the relative costs of resources. 
B)  Economic efficiency occurs when the firm produces a given output at the least cost. 
C)  A firm can be economically efficient without being technologically efficient. 
D)  Economic efficiency depends only on production methods. 
A)  Technological efficiency depends on the relative costs of resources. 
B)  Economic efficiency occurs when the firm produces a given output at the least cost. 
C)  A firm can be economically efficient without being technologically efficient. 
D)  Economic efficiency depends only on production methods.

Question 7

Wanda takes $3,000 from her savings account that pays 5 percent interest per year and uses the funds to purchase a computer for $3,000 for her business. At the end of the year the computer is worth $2,000. Wanda pays an implicit rental rate of ________ a year.

Accepted Answer

A)  $1,150 
B)  $4,000 
C)  $3,150 
D)  zero 
A)  $1,150 
B)  $4,000 
C)  $3,150 
D)  zero

Question 8

Sheila's Sports Shop is a very popular sporting goods store, which has a yearly revenue of $600,000. Sheila runs the business herself. Her alternative employment options are to be a college swimming coach for $50,000 per year or a construction worker for $40,000 per year. Sheila spends $230,000 purchasing goods for resale to her customers. She also has four employees, who each earn $25,000 per year. Sheila owns the building that her Sports Shop is housed in and she could have rented it out for $20,000 per year. Sheila's economic profit is equal to

Accepted Answer

A)  $160,000 per year. 
B)  $200,000 per year. 
C)  $250,000 per year. 
D)  $270,000 per year. 
A)  $160,000 per year. 
B)  $200,000 per year. 
C)  $250,000 per year. 
D)  $270,000 per year.

Question 9

If a market is shared equally by four firms, the Herfindahl-Hirschman Index is

Accepted Answer

A)  1/4. 
B)  4. 
C)  25. 
D)  2,500. 
A)  1/4. 
B)  4. 
C)  25. 
D)  2,500.

Question 10

Sheila's Sports Shop is a very popular sporting goods store, which has a yearly revenue of $600,000. Sheila runs the business herself. Her alternative employment options are to be a college swimming coach for $50,000 per year or a construction worker for $40,000 per year. Sheila spends $230,000 purchasing goods for resale to her customers. She also has four employees, who each earn $25,000 per year. Sheila owns the building that her Sports Shop is housed in and she could have rented it out for $20,000 per year. Sheila's costs for the resources that she supplies to the business equal

Accepted Answer

A)  $70,000 per year. 
B)  $90,000 per year. 
C)  $0 per year. 
D)  $330,000 per year. 
A)  $70,000 per year. 
B)  $90,000 per year. 
C)  $0 per year. 
D)  $330,000 per year.

Question 11

A major disadvantage of a proprietorship is that the ________.

Accepted Answer

A)  owner's entire wealth is at risk 
B)  profits are taxed twice 
C)  firm has perpetual life 
D)  owner has limited liability 
A)  owner's entire wealth is at risk 
B)  profits are taxed twice 
C)  firm has perpetual life 
D)  owner has limited liability

Question 12

Costs as measured by accountants generally does not include

Accepted Answer

A)  any of the opportunity costs of the firm. 
B)  any measure of depreciation. 
C)  the economic depreciation of the firm's equipment. 
D)  any rental rates. 
A)  any of the opportunity costs of the firm. 
B)  any measure of depreciation. 
C)  the economic depreciation of the firm's equipment. 
D)  any rental rates.

Question 13

Suppose Angelo Sessa, owner of Sezz Medi Brick Oven Pizza in NYC, earns $350,000 in revenue per year. He spends $800 a month on ash wood for his stove, $2000 a month on rent, and $1500 a month on ingredients. He used to be a lawyer and earned $240,000 a year before he opened up Sezz Medi. Normal profit for a pizza business is $30,000. If Angelo switches to oak wood to fire his stove and oak costs an extra $2500 each month, but this change causes his revenues to increase to $351,000. What is Angelo's economic profit?

Accepted Answer

A)  -$1,600 
B)  -$600 
C)  $9,000 
D)  $8,000 
A)  -$1,600 
B)  -$600 
C)  $9,000 
D)  $8,000

Question 14

A proprietorship is a firm with

Accepted Answer

A)  two or more owners who both have unlimited liability. 
B)  a single owner who has limited liability. 
C)  a single owner who has unlimited liability. 
D)  many owner all of whom have limited liability. 
A)  two or more owners who both have unlimited liability. 
B)  a single owner who has limited liability. 
C)  a single owner who has unlimited liability. 
D)  many owner all of whom have limited liability.

Question 15

If a firm that repairs both motorcycles and cars is able to do so at a lower cost than a firm that does only one or the other, this would be an example of

Accepted Answer

A)  economies of scope. 
B)  economies of scale. 
C)  monitoring. 
D)  increasing transactions costs. 
A)  economies of scope. 
B)  economies of scale. 
C)  monitoring. 
D)  increasing transactions costs.

Question 16

Techniques that produce 100 sweaters  
-Using the data in the above table, if the price of an hour of labor is $10 and the price of a unit of capital is $20, then the most economically efficient technique for producing 100 sweaters is

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 17

-The table below shows four alternative techniques for assembling a car. The cost of labor is $20 per hour, and the cost of capital is $10 per hour. Which of the four techniques for assembling a car is economically efficient?

Accepted Answer

A)  T-1 
B)  T-2 
C)  T-3 
D)  T-4 
A)  T-1 
B)  T-2 
C)  T-3 
D)  T-4

Question 18

If an industry is monopolized by one firm, the four-firm concentration ratio equals

Accepted Answer

A)  1 percent. 
B)  25 percent. 
C)  40 percent. 
D)  100 percent. 
A)  1 percent. 
B)  25 percent. 
C)  40 percent. 
D)  100 percent.

Question 19

An example of the principal-agent problem is when

Accepted Answer

A)  managers try to cope with employees that are inefficient. 
B)  proprietors don't receive any money payment for their entrepreneurial skills. 
C)  managers devise penalties that eliminate employee waste. 
D)  managers devise incentives that encourage employees to act in the owner's behalf. 
A)  managers try to cope with employees that are inefficient. 
B)  proprietors don't receive any money payment for their entrepreneurial skills. 
C)  managers devise penalties that eliminate employee waste. 
D)  managers devise incentives that encourage employees to act in the owner's behalf.

Question 20

The manufacturing sector is dominated by

Accepted Answer

A)  corporations. 
B)  partnerships. 
C)  proprietorships. 
D)  government firms. 
A)  corporations. 
B)  partnerships. 
C)  proprietorships. 
D)  government firms.

Exam 10: Organizing Production

A firm's goal is to maximize normal profit.

A firm with a sales department, a production department, and a marketing department provides an example of

The air travel market, which is dominated by a few large firms, is an example of

Paul and Wayne are starting a consulting firm together. Their liability is limited; therefore, their firm is an example of a

Which of the following statements is correct?

Wanda takes $3,000 from her savings account that pays 5 percent interest per year and uses the funds to purchase a computer for $3,000 for her business. At the end of the year the computer is worth $2,000. Wanda pays an implicit rental rate of ________ a year.

If a market is shared equally by four firms, the Herfindahl-Hirschman Index is

A major disadvantage of a proprietorship is that the ________.

Costs as measured by accountants generally does not include

A proprietorship is a firm with

If a firm that repairs both motorcycles and cars is able to do so at a lower cost than a firm that does only one or the other, this would be an example of

Techniques that produce 100 sweaters -Using the data in the above table, if the price of an hour of labor is $10 and the price of a unit of capital is $20, then the most economically efficient technique for producing 100 sweaters is

-The table below shows four alternative techniques for assembling a car. The cost of labor is $20 per hour, and the cost of capital is $10 per hour. Which of the four techniques for assembling a car is economically efficient?

If an industry is monopolized by one firm, the four-firm concentration ratio equals

An example of the principal-agent problem is when

The manufacturing sector is dominated by

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

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