Question 1

Firms will continue to produce if:

Accepted Answer

A)  the marginal benefits of producing an additional unit are greater than the marginal costs of producing that unit. 
B)  the marginal benefits of producing an additional unit are less than the marginal costs of producing that unit. 
C)  the marginal benefit of producing an additional unit is equal to the marginal cost of producing that unit. 
D)  the costs of producing the unit stay constant. 
A)  the marginal benefits of producing an additional unit are greater than the marginal costs of producing that unit. 
B)  the marginal benefits of producing an additional unit are less than the marginal costs of producing that unit. 
C)  the marginal benefit of producing an additional unit is equal to the marginal cost of producing that unit. 
D)  the costs of producing the unit stay constant.

Question 2

If the marginal benefit received from consuming a good is less than the marginal cost of production:

Accepted Answer

A)  society's well-being can be improved if production increases. 
B)  society's well-being can be improved if production decreases. 
C)  society's well-being cannot be improved by changing production. 
D)  the market is producing too little of the good. 
A)  society's well-being can be improved if production increases. 
B)  society's well-being can be improved if production decreases. 
C)  society's well-being cannot be improved by changing production. 
D)  the market is producing too little of the good.

Question 3

You decide to quit your $60,000-per-year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, you have earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the first year as an illustrator is:

Accepted Answer

A)  $15,000. 
B)  $20,000. 
C)  -$40,000. 
D)  -$45,000. 
A)  $15,000. 
B)  $20,000. 
C)  -$40,000. 
D)  -$45,000.

Question 4

In economic analysis, the principle of marginal analysis refers to:

Accepted Answer

A)  dividing large problems into smaller, more manageable ones. 
B)  the notion that a group's problems can be effectively analyzed by focusing on only a small subsample of the group. 
C)  the result that the optimal quantity of an activity is that at which marginal benefit is equal to marginal cost. 
D)  the result that the optimal quantity of an activity is that at which the net benefit of the representative, or marginal, individual is maximized. 
A)  dividing large problems into smaller, more manageable ones. 
B)  the notion that a group's problems can be effectively analyzed by focusing on only a small subsample of the group. 
C)  the result that the optimal quantity of an activity is that at which marginal benefit is equal to marginal cost. 
D)  the result that the optimal quantity of an activity is that at which the net benefit of the representative, or marginal, individual is maximized.

Question 5

Economic profit is:

Accepted Answer

A)  less than accounting profit if implicit costs exist. 
B)  always equal to accounting profit. 
C)  greater than accounting profit if implicit costs exist. 
D)  less than accounting profit if implicit costs are zero. 
A)  less than accounting profit if implicit costs exist. 
B)  always equal to accounting profit. 
C)  greater than accounting profit if implicit costs exist. 
D)  less than accounting profit if implicit costs are zero.

Question 6

Use the following to answer questions 
Scenario: Accounting and Economic Profit
Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000.
-(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and Economic Profit. What is the implicit cost of Wang's Wicker Furniture Store?

Accepted Answer

A)  $7,000 
B)  $60,000 
C)  $65,000 
D)  $69,000 
A)  $7,000 
B)  $60,000 
C)  $65,000 
D)  $69,000

Question 7

Total profit is maximized when marginal benefit _____ marginal cost.

Accepted Answer

A)  is more than 
B)  is less than 
C)  is equal to 
D)  approaches 
A)  is more than 
B)  is less than 
C)  is equal to 
D)  approaches

Question 8

If at a given quantity MB = MC, the decision maker should do _____ of the activity.

Accepted Answer

A)  less 
B)  that amount 
C)  more 
D)  none 
A)  less 
B)  that amount 
C)  more 
D)  none

Question 9

If the accounting profit for a firm is negative:

Accepted Answer

A)  the economic profit must be positive. 
B)  the economic profit must be negative. 
C)  the firm should produce more. 
D)  the firm will not owe any taxes. 
A)  the economic profit must be positive. 
B)  the economic profit must be negative. 
C)  the firm should produce more. 
D)  the firm will not owe any taxes.

Question 10

Use the following to answer questions :  
-(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. What is the optimal level of production?

Accepted Answer

A)  5 slices 
B)  10 slices 
C)  15 slices 
D)  20 slices
Answer Key 
A)  5 slices 
B)  10 slices 
C)  15 slices 
D)  20 slices
Answer Key

Question 11

Use the following to answer questions 
Scenario: Betty's Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it.
-(Scenario: Betty's Cookie Shop) Given the information provided, Betty's implicit costs are:

Accepted Answer

A)  her salary if she worked elsewhere and interest she forgoes by not selling her shop and putting the money in the bank. 
B)  the cost of labor, equipment, and raw materials. 
C)  the revenue she receives from selling her cookies plus the cost of labor, equipment, and raw materials. 
D)  revenue she receives from selling her cookies and her labor costs. 
A)  her salary if she worked elsewhere and interest she forgoes by not selling her shop and putting the money in the bank. 
B)  the cost of labor, equipment, and raw materials. 
C)  the revenue she receives from selling her cookies plus the cost of labor, equipment, and raw materials. 
D)  revenue she receives from selling her cookies and her labor costs.

Question 12

Use the following to answer questions 
Scenario: Accounting and Economic Profit
Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000.
-(Scenario: Accounting and Economic Profit) Look at the scenario Accounting and Economic Profit. The economic profit of Wang's Wicker Furniture Store is:

Accepted Answer

A)  $67,000. 
B)  $0. 
C)  -$20,000. 
D)  -$35,000. 
A)  $67,000. 
B)  $0. 
C)  -$20,000. 
D)  -$35,000.

Question 13

Use the following to answer questions :  
-(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor and assume that marginal cost is constant in the intervals of production. If 10 slices are being produced, the marginal cost of producing one more slice of pizza is:

Accepted Answer

A)  $2. 
B)  $10. 
C)  $40. 
D)  $70. 
A)  $2. 
B)  $10. 
C)  $40. 
D)  $70.

Question 14

Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at least _____ and the marginal benefit from the third slice must be less than _____.

Accepted Answer

A)  $3.50; $4.50 
B)  $3.50; $1.00 
C)  $1.50; $1.00 
D)  $1.50; $4.50 
A)  $3.50; $4.50 
B)  $3.50; $1.00 
C)  $1.50; $1.00 
D)  $1.50; $4.50

Question 15

Profit is the difference between _____ and _____.

Accepted Answer

A)  total sales; total revenues 
B)  total profits; total costs 
C)  total revenues; total costs 
D)  marginal costs; marginal revenues 
A)  total sales; total revenues 
B)  total profits; total costs 
C)  total revenues; total costs 
D)  marginal costs; marginal revenues

Question 16

If the marginal benefit received from consuming a good is greater than the marginal cost of production:

Accepted Answer

A)  society's well-being can be improved if production increases. 
B)  society's well-being can be improved if production decreases. 
C)  society's well-being cannot be improved by changing production. 
D)  the market is producing too much of the good. 
A)  society's well-being can be improved if production increases. 
B)  society's well-being can be improved if production decreases. 
C)  society's well-being cannot be improved by changing production. 
D)  the market is producing too much of the good.

Question 17

Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled:

Accepted Answer

A)  $10,000. 
B)  $50,000. 
C)  $100,000. 
D)  $200,000. 
A)  $10,000. 
B)  $50,000. 
C)  $100,000. 
D)  $200,000.

Question 18

The implicit cost of capital is:

Accepted Answer

A)  the expense associated with leasing machines. 
B)  the expense associated with buying machines. 
C)  the opportunity cost of capital used by a business. 
D)  irrelevant for determining economic profit. 
A)  the expense associated with leasing machines. 
B)  the expense associated with buying machines. 
C)  the opportunity cost of capital used by a business. 
D)  irrelevant for determining economic profit.

Question 19

Economic profits are calculated by:

Accepted Answer

A)  taking the difference between total revenue and the sum of explicit and implicit costs. 
B)  taking the difference between total revenue and explicit costs only. 
C)  taking the difference between the total revenue and implicit costs only. 
D)  summing total revenue, explicit costs, and implicit costs. 
A)  taking the difference between total revenue and the sum of explicit and implicit costs. 
B)  taking the difference between total revenue and explicit costs only. 
C)  taking the difference between the total revenue and implicit costs only. 
D)  summing total revenue, explicit costs, and implicit costs.

Question 20

According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____.

Accepted Answer

A)  more than; an activity should be reduced 
B)  less than; an activity should be reduced 
C)  equal to; an activity should be reduced 
D)  more than; net benefit is maximized 
A)  more than; an activity should be reduced 
B)  less than; an activity should be reduced 
C)  equal to; an activity should be reduced 
D)  more than; net benefit is maximized

Exam 10: Decision Making by Individuals and Firms

Firms will continue to produce if:

If the marginal benefit received from consuming a good is less than the marginal cost of production:

You decide to quit your $60,000-per-year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, you have earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the first year as an illustrator is:

In economic analysis, the principle of marginal analysis refers to:

Economic profit is:

Total profit is maximized when marginal benefit _____ marginal cost.

If at a given quantity MB = MC, the decision maker should do _____ of the activity.

If the accounting profit for a firm is negative:

Use the following to answer questions : -(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. What is the optimal level of production?

Use the following to answer questions : -(Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor and assume that marginal cost is constant in the intervals of production. If 10 slices are being produced, the marginal cost of producing one more slice of pizza is:

Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at least _____ and the marginal benefit from the third slice must be less than _____.

Profit is the difference between _____ and _____.

If the marginal benefit received from consuming a good is greater than the marginal cost of production:

Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled:

The implicit cost of capital is:

Economic profits are calculated by:

According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____.

First Principles

Economic Models- Trade-Offs and Trade

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas- Meddling With Markets

Elasticity

Taxes

The Rational Consumer

International Trade

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Macroeconomics- the Big Picture

Gdp and the Consumer Price Index

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Macroeconomics- Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

Toward a Fuller Understanding

Consumer Preferences and Consumer Choice

Indifference Curve Analysis of Labor Supply

Filters

Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at least _ and the marginal benefit from the third slice must be less than _.

Profit is the difference between _ and _.

According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _ the marginal cost, _.