Question 1

Economic profit accounts for both implicit and explicit costs.

Accepted Answer

A) True 
 B)False

Question 2

Refer to Scenario 7.6 below to answer the question(s) that follow.
SCENARIO 7.6: Upon graduating with an accounting degree, you open your own accounting firm of which you and your assistant are the only employees. To start the firm you passed on a job offer with a large accounting firm that offered you a salary of $50,000 annually. Last year you earned a total revenue of $120,000. Rent and supplies last year were $50,000. Your assistant's salary is $30,000 annually.
-Refer to Scenario 7.6. Your annual economic costs are

Accepted Answer

A)  $50,000. 
B)  $80,000. 
C)  $100,000. 
D)  $130,000. 
A)  $50,000. 
B)  $80,000. 
C)  $100,000. 
D)  $130,000.

Question 3

The formula for the marginal product of labor is

Accepted Answer

A)  L/q. 
B)  (ΔL)(Δq). 
C)  q/L. 
D)  Δq/ΔL. 
A)  L/q. 
B)  (ΔL)(Δq). 
C)  q/L. 
D)  Δq/ΔL.

Question 4

Refer to Scenario 7.1 below to answer the question(s) that follow.
SCENARIO 7.1: You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year.
-Refer to Scenario 7.1. Your economic profit last year was

Accepted Answer

A)  -$40,000. 
B)  -$10,000. 
C)  $10,000. 
D)  $30,000. 
A)  -$40,000. 
B)  -$10,000. 
C)  $10,000. 
D)  $30,000.

Question 5

Refer to Scenario 7.5 below to answer the question(s) that follow.
SCENARIO 7.5: You own and are the only employee of a company that customizes bicycles. Last year your total revenue was $60,000. Your costs for rent and supplies were $25,000. To start this business you invested an amount of your own capital that could pay you a $45,000 a year return.
-Refer to Scenario 7.5. Your economic profit last year was

Accepted Answer

A)  -$20,000. 
B)  -$10,000. 
C)  $15,000. 
D)  $35,000. 
A)  -$20,000. 
B)  -$10,000. 
C)  $15,000. 
D)  $35,000.

Question 6

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow.   Figure 7.8
-Refer to Figure 7.8. The slope of isocost AB is

Accepted Answer

A)  greater than the slope of isocost CD. 
B)  less than the slope of isocost CD. 
C)  equal to the slope of isocost CD. 
D)  indeterminate from this information, as the prices of capital and labor are not given. 
A)  greater than the slope of isocost CD. 
B)  less than the slope of isocost CD. 
C)  equal to the slope of isocost CD. 
D)  indeterminate from this information, as the prices of capital and labor are not given.

Question 7

Refer to Scenario 7.2 below to answer the question(s) that follow.
SCENARIO 7.2: You are the owner and only employee of a company that sets odds for sporting events. Last year you earned a total revenue of $100,000. Your costs for rent and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a return of $20,000 a year.
-Refer to Scenario 7.2. A yearly normal return for your company is

Accepted Answer

A)  $20,000. 
B)  $40,000. 
C)  $60,000. 
D)  $100,000. 
A)  $20,000. 
B)  $40,000. 
C)  $60,000. 
D)  $100,000.

Question 8

Refer to Scenario 7.8 below to answer the question(s) that follow.
SCENARIO 7.8: A swimming pool cleaning company has the following production possibilities. With one, two, three, and four workers, the company can clean 5, 12, 17, and 20 pools per day, respectively.
-Refer to Scenario 7.8. The marginal product of the third worker is

Accepted Answer

A)  4. 
B)  5. 
C)  12. 
D)  17. 
A)  4. 
B)  5. 
C)  12. 
D)  17.

Question 9

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow.   Figure 7.8
-Refer to Figure 7.8. The firm is currently along isocost CE. If the price of labor is $24, then the price of labor is

Accepted Answer

A)  $16. 
B)  $24. 
C)  $36. 
D)  $80. 
A)  $16. 
B)  $24. 
C)  $36. 
D)  $80.

Question 10

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow.   Figure 7.8
-Refer to Figure 7.8. The firm's isocost line could shift from CD to CE if the

Accepted Answer

A)  price of labor increased. 
B)  firm's total expenditures increased by 50%. 
C)  price of labor decreased by 50%. 
D)  firm's total expenditures increased by 50% or the price of capital and labor each decreased by 33%. 
A)  price of labor increased. 
B)  firm's total expenditures increased by 50%. 
C)  price of labor decreased by 50%. 
D)  firm's total expenditures increased by 50% or the price of capital and labor each decreased by 33%.

Question 11

Factors of production such as labor and capital

Accepted Answer

A)  are complementary. 
B)  are substitutable. 
C)  can be complements and also substitutes. 
D)  can be neither complements nor substitutes. 
A)  are complementary. 
B)  are substitutable. 
C)  can be complements and also substitutes. 
D)  can be neither complements nor substitutes.

Question 12

The optimal method of production is the one that

Accepted Answer

A)  maximizes output regardless of cost. 
B)  maximizes inputs. 
C)  minimizes cost. 
D)  minimizes the normal rate of return. 
A)  maximizes output regardless of cost. 
B)  maximizes inputs. 
C)  minimizes cost. 
D)  minimizes the normal rate of return.

Question 13

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow.   Figure 7.8
-Refer to Figure 7.8. The slope of isocost AB is

Accepted Answer

A)  -1. 
B)  0. 
C)  1. 
D)  indeterminate from this information, as the prices of capital and labor are not given. 
A)  -1. 
B)  0. 
C)  1. 
D)  indeterminate from this information, as the prices of capital and labor are not given.

Question 14

Refer to the information provided in Figure 7.4 below to answer the question(s) that follow.   Figure 7.4
-Refer to Figure 7.4. The marginal product of the sixth worker is

Accepted Answer

A)  -50. 
B)  -5. 
C)  5. 
D)  8.33. 
A)  -50. 
B)  -5. 
C)  5. 
D)  8.33.

Question 15

Refer to the information provided in Figure 7.9 below to answer the question(s) that follow.   Figure 7.9
-Refer to Figure 7.9. The firm is currently along isocost CD. If the price of capital is $40, then the price of labor is

Accepted Answer

A)  $6. 
B)  $40. 
C)  $240. 
D)  indeterminate from this information. 
A)  $6. 
B)  $40. 
C)  $240. 
D)  indeterminate from this information.

Question 16

Refer to the information provided in Figure 7.5 below to answer the question(s) that follow.   Figure 7.5
-Refer to Figure 7.5. Diminishing marginal returns set in after the ________ worker is hired.

Accepted Answer

A)  first 
B)  fifth 
C)  eighth 
D)  sixteenth 
A)  first 
B)  fifth 
C)  eighth 
D)  sixteenth

Question 17

When total product is maximized, marginal product

Accepted Answer

A)  and average product are zero. 
B)  is positive, but average product is zero. 
C)  is zero, but average product is positive. 
D)  and average product are positive. 
A)  and average product are zero. 
B)  is positive, but average product is zero. 
C)  is zero, but average product is positive. 
D)  and average product are positive.

Question 18

A firm produces 5 units of output from the last dollar it spends on labor and 10 units from the last dollar spent on capital. The firm should

Accepted Answer

A)  employ more labor and less capital. 
B)  employ more capital and less labor. 
C)  employ more capital and labor. 
D)  employ less capital and labor. 
A)  employ more labor and less capital. 
B)  employ more capital and less labor. 
C)  employ more capital and labor. 
D)  employ less capital and labor.

Question 19

Refer to the information provided in Figure 7.7 below to answer the question(s) that follow.   Figure 7.7
-Refer to Figure 7.7 above. If Roller Skates Unlimited moves from isoquant B to isoquant A, the number of roller skates produced

Accepted Answer

A)  decreases. 
B)  increases. 
C)  remains constant, but Roller Skates Unlimited uses more capital and more labor. 
D)  remains constant, but input prices have risen. 
A)  decreases. 
B)  increases. 
C)  remains constant, but Roller Skates Unlimited uses more capital and more labor. 
D)  remains constant, but input prices have risen.

Question 20

Refer to the information provided in Figure 7.11 below to answer the question(s) that follow.   Figure 7.11
-Refer to Figure 7.11. If the firm's cost of capital is $24 per unit and its cost of labor is $48 per unit, the isocost line represents a total cost of

Accepted Answer

A)  $2,400. 
B)  $3,600. 
C)  $4,800. 
D)  $7,200. 
A)  $2,400. 
B)  $3,600. 
C)  $4,800. 
D)  $7,200.

Exam 7: The Production Process: the Behavior of Profit-Maximizing Firms

Economic profit accounts for both implicit and explicit costs.

The formula for the marginal product of labor is

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. The slope of isocost AB is

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. The firm is currently along isocost CE. If the price of labor is $24, then the price of labor is

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. The firm's isocost line could shift from CD to CE if the

Factors of production such as labor and capital

The optimal method of production is the one that

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. The slope of isocost AB is

Refer to the information provided in Figure 7.4 below to answer the question(s) that follow. Figure 7.4 -Refer to Figure 7.4. The marginal product of the sixth worker is

Refer to the information provided in Figure 7.9 below to answer the question(s) that follow. Figure 7.9 -Refer to Figure 7.9. The firm is currently along isocost CD. If the price of capital is $40, then the price of labor is

Refer to the information provided in Figure 7.5 below to answer the question(s) that follow. Figure 7.5 -Refer to Figure 7.5. Diminishing marginal returns set in after the ________ worker is hired.

When total product is maximized, marginal product

A firm produces 5 units of output from the last dollar it spends on labor and 10 units from the last dollar spent on capital. The firm should

Refer to the information provided in Figure 7.7 below to answer the question(s) that follow. Figure 7.7 -Refer to Figure 7.7 above. If Roller Skates Unlimited moves from isoquant B to isoquant A, the number of roller skates produced

Refer to the information provided in Figure 7.11 below to answer the question(s) that follow. Figure 7.11 -Refer to Figure 7.11. If the firm's cost of capital is $24 per unit and its cost of labor is $48 per unit, the isocost line represents a total cost of

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: The Labor and Land Markets

Input Demand: The Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

Money, the Federal Reserve, and the Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Cost Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

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