Deck 12: The Costs of Production

Question 1

Total revenue is:

A) the amount that a firm spends on all inputs that go into producing a good or service.
B) the quantity sold multiplied by the price paid for each unit.
C) the quantity produced multiplied by the cost of producing each unit.
D) the amount that an individual gets paid over a specified period of time, typically annually.

Answer 1

B

Question 2

A college student is thinking about running an ice-cream truck over the summer.Which of the following would likely be included in the total cost of the business?

A) The cost of ice cream cones
B) The cost of the truck
C) The opportunity cost of the student's time
D) All of these would be included in total cost.

Answer 2

D

Question 3

Suppose Sam's Shoe Co.makes only one kind of shoe,which sells for $50 a pair.If they sold 500,000 pairs of shoes,and had a total cost of $1,000,000,what was the company's profit?

A) $1,500,000
B) $24,000,000
C) $40,000,000
D) Not enough information is given to calculate profit.

Answer 3

B

Question 4

Total cost can be defined as:

A) the amount that a firm receives from the sale of goods and services.
B) the amount that an individual spends on all normal goods and services within a specified period of time.
C) the amount that a firm spends on all inputs that go into producing a good or service.
D) None of these is correct.

Question 5

Total revenue can be defined as:

A) the amount that a firm receives from the sale of goods and services.
B) the amount that a firm spends on all inputs that go into making a good or service.
C) the total amount a firm spends on all inputs used in production.
D) the total number of sales of a good or service by a firm.

Question 6

An example of a one-time expense for a shoe factory would be buying:

A) a sewing machine, and would be included in total cost.
B) a sewing machine, and would be excluded from total cost.
C) leather to make the shoes, and would be included in total cost.
D) leather to make the shoes, and would be excluded from total cost.

Question 7

Which of the following would be considered an ongoing expense?

A) Employee salaries
B) Raw materials
C) Advertising
D) All of these could be considered ongoing expenses.

Question 8

A college student is thinking about running an ice-cream truck over the summer.What would economists say is the student's main objective?

A) To spend as little on inputs as possible
B) To maximize hourly earnings
C) To sell as many ice cream cones as possible
D) To maximize his profit

Question 9

A college student is thinking about running an ice-cream truck over the summer.Which of the following would likely be an ongoing expense of the business?

A) The cost of the truck
B) The cost of the gasoline used
C) The cost of ice cream scoopers
D) None of these is an ongoing expense.

Question 10

A college student is thinking about running an ice-cream truck over the summer.Which of the following would likely be a one-time expense of the business?

A) The cost of ice cream cones
B) The cost of the truck
C) The cost of the gasoline
D) All of these are one-time expenses.

Question 11

Which of the following would be considered a one-time expense?

A) Raw materials
B) A delivery truck
C) Radio ads
D) A manager's salary

Question 12

Suppose Sam's Shoe Co.makes only one kind of shoe,which sells for $50 a pair.If they sold 500,000 pairs of shoes,then their total revenue would be:

A) $25,000,000.
B) $10,000.
C) $2,500,000.
D) Cannot answer this question without knowing the cost per pair.

Question 13

Total revenue is:

A) cost multiplied by quantity of each item produced.
B) price multiplied by quantity subtracted from total cost.
C) price multiplied by quantity of each item sold.
D) None of these is true.

Question 14

An example of an ongoing expense for a toy company would be buying:

A) a delivery truck, and would be included in total cost.
B) a new factory, and would be excluded from total cost.
C) advertising for their products, and would be included in total cost.
D) None of these is true.

Question 15

Total cost includes:

A) one-time expenses and ongoing expenses.
B) forgone opportunity costs.
C) the amount the firm spends on all inputs that go into the production of a good or service.
D) All of these are true.

Question 16

Total cost includes:

A) one-time expenses and ongoing expenses.
B) one-time expenses, but not ongoing expenses.
C) only ongoing expenses, not one-time expenses.
D) only expenses that are variable.

Question 17

In business,the "bottom line" refers to the very last line of a(n):

A) income statement, which shows profit.
B) balance sheet, which shows profit.
C) income statement, which shows total revenue.
D) balance sheet, which shows total income.

Question 18

The amount that a firm receives from the sale of goods and services is called:

A) total cost.
B) total revenue.
C) profit.
D) maximum profit.

Question 19

Economists assume the central goal of any business is to:

A) maximize revenues.
B) minimize costs.
C) maximize profit.
D) maximize market share.

Question 20

Profit is the:

A) total revenue minus total cost.
B) sum of total revenue and total cost.
C) total cost minus total revenue.
D) None of these is true.

Question 21

Suppose Bev's Bags makes two kinds of handbags-large and small.Bev rents an industrial space where she keeps the fabric,the industrial sewing machine,her measuring board and cutting shears,extra needles,thread and buttons,and labels.If Bev were to produce no bags,what would her variable cost include?

A) The cost of the fabric
B) The sewing machine
C) The measuring board
D) Her variable cost would be zero if she produced zero bags.

Question 22

Fixed costs are:

A) costs that depend on the quantity of output produced.
B) inputs costs that stay the same price per unit.
C) costs that don't depend on the quantity of output produced.
D) costs that are negotiated to stay the same throughout the life of a contract.

Question 23

Variable costs are:

A) costs that don't depend on the quantity of output produced.
B) costs that depend on the quantity of output produced.
C) one-time costs.
D) None of these is true.

Question 24

Suppose Larry's Lariats produces lassos,and uses nine feet of rope to make each lasso.The rope is put into a machine that automatically cuts it to the right length,then seals the ends to prevent fraying.The rope is then hand tied,dipped,and wound before being placed in a packaging machine to prepare it for retail sale.The total costs for this company would include:

A) the cost of rope.
B) employee's wages.
C) the rope-cutting machine.
D) All of these expenses would be included in total cost.

Question 25

Suppose Larry's Lariats produces lassos in a factory,and uses nine feet of rope to make each lasso.The rope is put into a machine that automatically cuts it to the right length,then seals the ends to prevent fraying.The rope is then hand tied,dipped,and wound before being placed in a packaging machine to prepare it for retail sale.Which of the following would be considered a variable cost for this company?

A) The cost of the factory
B) Employee wages
C) The rope-cutting machine
D) All of these expenses would be included in variable costs.

Question 26

Suppose Chip's Chips produces bags of potato chips that sell for $3 a bag.What was the total revenue for Chip's Chips?

A) Cannot answer this question without knowing the cost per bag.
B) Cannot answer this question without knowing the quantity of bags sold.
C) Cannot answer this question without knowing the cost per bag and the quantity of bags sold.
D) Cannot answer this question without knowing what market share they hold.

Question 27

Suppose Bev's Bags makes large handbags and small handbags.They sold 70,000 large bags for $45 each and 25,000 small bags for $15 each.What was the total revenue for this company?

A) $3,150,000
B) $375,000
C) $3,525,000
D) $2,850,000

Question 28

Suppose Bev's Bags makes two kinds of handbags-large and small.Bev rents an industrial space where she keeps the fabric,the industrial sewing machine,her measuring board and cutting shears,extra needles,thread and buttons,and labels.Bev can produce three bags an hour,regardless of the size of bag.Which of the following would be considered a fixed cost of this company?

A) The rent Bev pays
B) The fabric
C) The sewing thread
D) None of these would be considered a fixed cost.

Question 29

Suppose Chip's Chips produces bags of potato chips that sell for $3 a bag.If they sold 12,000 bags and incurred total costs of $30,000,what was the company's profit?

A) $6,000
B) $42,000
C) $36,000
D) $18,000

Question 30

Suppose Bev's Bags makes two kinds of handbags-large and small.Bev rents an industrial space where she keeps the fabric,the industrial sewing machine,her measuring board and cutting shears,extra needles,thread and buttons,and labels.Which of the following would be considered a variable cost of this company?

A) The rent
B) The fabric
C) The cutting shears
D) None of these would be considered a variable cost.

Question 31

Suppose Larry's Lariats produced 25,000 lassos and sold each for $10.What was the total revenue for the company?

A) $250,000
B) $25,000
C) $2,500
D) $2,500,000

Question 32

Suppose Chip's Chips produces bags of potato chips.An example of a fixed cost for this company would be:

A) a potato peeling machine.
B) the factory building.
C) the deep fryer.
D) All of these are examples of fixed costs.

Question 33

Suppose Larry's Lariats produces lassos in a factory,and uses nine feet of rope to make each lasso.The rope is put into a machine that automatically cuts it to the right length,then seals the ends to prevent fraying.The rope is then hand tied,dipped,and wound before being placed in a packaging machine to prepare it for retail sale.Which of the following would be considered a fixed cost for this company?

A) Employee wages
B) The cost of rope
C) The packaging material
D) None of these would be considered a fixed cost.

Question 34

Suppose Sam's Shoe Co.makes one kind of shoe.An example of a variable cost for this company would be:

A) the design pattern for the shoes. .
B) the leather needed to make the shoes.
C) the lease to the factory building.
D) All of these are examples of variable costs.

Question 35

If a firm produces nothing,then its:

A) variable costs equal zero.
B) fixed costs equal zero.
C) total costs equal zero.
D) All of these are true.

Question 36

Suppose Sam's Shoe Co.makes one kind of shoe.An example of a fixed cost for this company would be:

A) the lease for the factory building.
B) the leather needed to make the shoes.
C) the needles for the sewing machines that need to be replaced after sewing every 1,000 pairs.
D) All of these are examples of fixed costs.

Question 37

Suppose Larry's Lariats produced 25,000 lassos and sold each for $10.What was the profit for this company?

A) $250,000
B) $25,000
C) $125,000
D) Cannot calculate profit without more information.

Question 38

Suppose Chip's Chips produces bags of potato chips.An example of a variable cost for this firm would be:

A) the potato peeling machine.
B) the factory building.
C) the deep fryer.
D) None of these is an example of a variable cost.

Question 39

Suppose Bev's Bags makes large handbags and small handbags.They sold 70,000 large bags for $45 each and 25,000 small bags for $15 each.If the company had total costs of $2,000,000,what was the profit for this company?

A) $1,525,000
B) $3,525,000
C) $375,000
D) $850,000

Question 40

If a firm stops production,then its:

A) fixed costs rise.
B) total costs may increase or decrease.
C) variable costs drop to zero.
D) All of these are true.

Question 41

Costs that require a firm to spend money are considered:

A) fixed costs.
B) variable costs.
C) explicit costs.
D) implicit costs.

Question 42

Sanford wants to start up his own business,and needs $50,000 to get it off the ground.He can either withdraw it from his savings account,where he currently earns 2 percent,or he can take out a loan for $50,000 and pay 2 percent interest.Sanford should compare:

A) the implicit cost of $1,000 to the explicit cost of $51,000 and choose to use his savings.
B) the implicit cost of $51,000 to the explicit cost of $1,000 and choose to borrow the money.
C) the explicit cost of $1,000 to the implicit cost of $1,000 and realize it will cost the same whether he borrows it or uses his savings for the venture.
D) the explicit cost of $1,000 to the implicit cost of $51,000 and choose to borrow the money.

Question 43

Mika's Manicures leases a space in the local mall for $4,500 a month.For this business,this expense would be considered an:

A) implicit cost of $4,500.
B) explicit cost of $4,500.
C) explicit cost of $0.
D) This is neither an implicit or explicit cost; it is a fixed cost of $4,500.

Question 44

Explicit costs include:

A) out-of-pocket costs.
B) fixed costs.
C) variable costs.
D) All of these are included in explicit costs.

Question 45

Mika withdraws $100,000 from her trust fund to start up her own manicure business.The trust fund earns 4 percent interest.In order to properly account for all costs of her business,Mika must not forget:

A) the implicit cost of $104,000.
B) the implicit cost of $4,000.
C) the explicit cost of $104,000.
D) the explicit cost of $4,000.

Question 46

Doug wants to start up his own business,and needs $25,000 to get it off the ground.He can either withdraw it from his savings account,where he currently earns 3 percent,or he can take out a loan for $25,000 and pay 5 percent interest.Doug should compare:

A) the implicit cost of $750 to the explicit cost of $1,250 and choose to use his savings.
B) the implicit cost of $750 to the explicit cost of $1,250 and choose to borrow the money.
C) the explicit cost of $750 to the implicit cost of $1,250 and choose to use his savings.
D) the explicit cost of $25,750 to the explicit cost of $26,250 and choose to borrow the money.

Question 47

If a firm increases production,then its:

A) variable costs rise.
B) fixed costs stay the same.
C) total costs increase.
D) All of these are true.

Question 48

Suppose Bev's Bags makes two kinds of handbags-large and small.Bev rents an industrial space where she keeps the fabric,the industrial sewing machine,her measuring board and cutting shears,extra needles,thread and buttons,and labels.If Bev were to produce no bags,which of the following is true regarding Bev's costs?

A) The variable cost of fabric would drop to zero.
B) The fixed cost of thread would stay the same.
C) The variable cost of cutting shears would drop to zero.
D) All of these are true.

Question 49

Suppose Larry's Lariats produces lassos in a factory,and uses nine feet of rope to make each lasso.The rope is put into a machine that automatically cuts it to the right length,then seals the ends to prevent fraying.The rope is then hand tied,dipped,and wound before being placed in a packaging machine to prepare it for retail sale.If Larry were to decrease the production of lassos,which of the following is true regarding the company's costs?

A) The variable costs of rope would drop to zero.
B) The fixed cost of the rope cutting machine would stay the same.
C) The fixed cost of the employee's wages would stay the same.
D) None of these is true.

Question 50

If a sandwich shop produces zero sandwiches,which of the following costs will it still incur?

A) Employee's wages
B) Sandwich ingredients
C) Rented storefront
D) None of these costs will be incurred if they no longer make sandwiches.

Question 51

Imagine Tom's annual salary as an assistant store manager is $30,000,he owns a building that rents for $10,000 yearly,and his financial assets generate $1,000 per year in interest.One day,after deciding to be his own boss,he quits his job,evicts his tenants,and uses his financial assets to establish a bicycle repair shop.To run the business,he outlays $15,000 in cash to cover all the costs involved with running the business,and earns revenues of $50,000.What are Tom's accounting profits?

A) $50,000
B) $24,000
C) $35,000
D) $6,000

Question 52

If a firm decreases production,then its:

A) variable costs decrease.
B) fixed costs decrease.
C) total costs stay the same.
D) None of these is true.

Question 53

Mike wants to open his own repair shop,and is considering using his savings of $30,000 to get it started.He is currently earning 3 percent interest on his savings.His friend Bob calls him and asks to borrow $30,000 to start up a bagel shop; Bob offers to pay him 5 percent interest if he loans him the money.If Mike were to use the money to open his own repair shop,how can he accurately account for his costs?

A) Mike must consider the $900 in forgone interest on his savings as an implicit cost.
B) Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an implicit cost.
C) Mike must consider the $900 in forgone interest on his savings as an explicit cost.
D) Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an explicit cost.

Question 54

Mika borrows $100,000 to start up her own beauty shop.She pays 5 percent interest on her loan.In order to account for all costs of her business,Mika must not forget:

A) the implicit cost of $100,000.
B) the implicit cost of $5,000.
C) the explicit cost of $105,000.
D) the explicit cost of $5,000.

Question 55

Davy's Doggie Daycare rents a warehouse and field for $2,000 a month to house its boarding pooches.Farmer Fred owns the property,he used to use it for farming and made $3,000 a month,but has since retired.What is the cost of the warehouse and field to Davy?

A) It is an explicit cost of $2,000.
B) It is an implicit cost of $3,000.
C) It is an implicit cost of $0.
D) There is both an explicit and implicit cost totaling $5,000.

Question 56

Explicit costs are costs that:

A) require a firm to spend money.
B) are zero when no output is produced.
C) do not depend on the quantity of output produced.
D) depend on the quantity of output produced.

Question 57

If a firm stops production,then its:

A) variable costs decrease to zero.
B) fixed costs stay the same.
C) total costs decrease.
D) All of these are true.

Question 58

Tina withdraws $20,000 from her money market account to start up her own house cleaning business.Over that time,the account would have earned 3 percent interest.In order to properly account for all costs of her business,Tina must not forget:

A) the opportunity cost of $2,600.
B) the opportunity cost of $600.
C) the fixed cost of $20,600.
D) the fixed cost of $20,600 and the opportunity cost of $600.

Question 59

If a firm decreases production,then its:

A) variable costs rise.
B) fixed costs stay the same.
C) total costs increase.
D) All of these are true.

Question 60

Implicit costs are costs that:

A) require a firm to spend money.
B) represent forgone opportunities.
C) do not depend on the quantity of output produced.
D) depend on the quantity of output produced.

Question 61

When economic profits are zero,accounting profits are most likely:

A) positive.
B) negative.
C) zero.
D) All of these are likely.

Question 62

Suppose Winston's annual salary as an accountant is $60,000,and his financial assets generate $4,000 per year in interest.One day,after deciding to be his own boss,he quits his job and uses his financial assets to establish a consulting business,which he runs out of his home.To run the business,he outlays $8,000 in cash to cover all the costs involved with running the business,and earns revenues of $150,000.What are Winston's explicit costs?

A) $64,000
B) $72,000
C) $8,000
D) $12,000

Question 63

When accounting profits are zero,which of the following is most likely to be true?

A) Economic profits could be zero.
B) Economic profits could be positive.
C) Economic profits are negative.
D) All of these are likely.

Question 64

Imagine Tom's annual salary as an assistant store manager is $30,000,he owns a building that rents for $10,000 yearly,and his financial assets generate $1,000 per year in interest.One day,after deciding to be his own boss,he quits his job,evicts his tenants,and uses his financial assets to establish a bicycle repair shop.To run the business,he outlays $15,000 in cash to cover all the costs involved with running the business,and earns revenues of $50,000.What are Tom's economic profits?

A) $35,000
B) $50,000
C) $24,000
D) $6,000

Question 65

Suppose Winston's annual salary as an accountant is $60,000,and his financial assets generate $4,000 per year in interest.One day,after deciding to be his own boss,he quits his job and uses his financial assets to establish a consulting business,which he runs out of his home.To run the business,he outlays $8,000 in cash to cover all the costs involved with running the business,and earns revenues of $150,000.What costs would be considered when calculating accounting profit?

A) The opportunity cost of his job and interest forgone of $64,000, and the explicit cost of $8,000
B) The implicit cost of the interest forgone of $4,000 and the explicit cost of $8,000
C) The explicit cost of $8,000
D) The implicit cost of his job of $60,000 and the opportunity cost of forgone interest of $4,000

Question 66

Suppose Winston's annual salary as an accountant is $60,000,and his financial assets generate $4,000 per year in interest.One day,after deciding to be his own boss,he quits his job and uses his financial assets to establish a consulting business,which he runs out of his home.To run the business,he outlays $8,000 in cash to cover all the costs involved with running the business,and earns revenues of $150,000.What are Winston's economic profits?

A) $78,000
B) $142,000
C) $138,000
D) $150,000

Question 67

Suppose Winston's annual salary as an accountant is $60,000,and his financial assets generate $4,000 per year in interest.One day,after deciding to be his own boss,he quits his job and uses his financial assets to establish a consulting business,which he runs out of his home.To run the business,he outlays $8,000 in cash to cover all the costs involved with running the business,and earns revenues of $150,000.What are Winston's implicit costs?

A) $64,000
B) $72,000
C) $4,000
D) $60,000

Question 68

Suppose Winston's annual salary as an accountant is $60,000,and his financial assets generate $4,000 per year in interest.One day,after deciding to be his own boss,he quits his job and uses his financial assets to establish a consulting business,which he runs out of his home.To run the business,he outlays $8,000 in cash to cover all the costs involved with running the business,and earns revenues of $150,000.What are Winston's accounting profits?

A) $78,000
B) $142,000
C) $138,000
D) $150,000

Question 69

Economic profits are calculated as:

A) total revenue minus explicit costs.
B) total revenue minus all opportunity costs, explicit and implicit.
C) total revenue minus implicit costs.
D) None of these is true.

Question 70

Accounting profits are calculated as:

A) total revenue minus explicit costs.
B) total revenue minus all opportunity costs, explicit and implicit.
C) total revenue minus implicit costs.
D) None of these is true.

Question 71

Suppose Winston's annual salary as an accountant is $60,000,and his financial assets generate $4,000 per year in interest.One day,after deciding to be his own boss,he quits his job and uses his financial assets to establish a consulting business,which he runs out of his home.To run the business,he outlays $8,000 in cash to cover all the costs involved with running the business,and earns revenues of $150,000.What costs would be considered when calculating economic profit?

A) The opportunity cost of his job and interest forgone of $64,000, and the explicit cost of $8,000
B) The implicit cost of the interest forgone of $4,000 and the explicit cost of $8,000
C) The explicit cost of $8,000
D) The implicit cost of his job of $60,000 and the opportunity cost of forgone interest of $4,000

Question 72

When economic profits are positive,accounting profits could be:

A) positive.
B) negative.
C) zero.
D) All of these are possible.

Question 73

When accounting profits are positive,economic profits could be:

A) positive.
B) negative.
C) zero.
D) All of these are possible.

Question 74

The larger the implicit costs of a business:

A) the greater accounting profit will be.
B) the smaller economic profit will be.
C) the more likely it will be a successful venture.
D) the smaller the explicit costs will be.

Question 75

In general,economic profits are:

A) greater than accounting profits.
B) less than accounting profits.
C) the same as accounting profits.
D) not comparable to accounting profits.

Question 76

Imagine Tom's annual salary as an assistant store manager is $30,000,he owns a building that rents for $10,000 yearly,and his financial assets generate $1,000 per year in interest.One day,after deciding to be his own boss,he quits his job,evicts his tenants,and uses his financial assets to establish a bicycle repair shop.To run the business,he outlays $15,000 in cash to cover all the costs involved with running the business,and earns revenues of $50,000.Has Tom made the best decision?

A) Yes, because he's earning an accounting profit of $35,000.
B) No, because he's earning an economic profit of $6,000.
C) Yes, because his accounting profit is larger than his economic profit.
D) No, because his accounting profit is larger than his economic profit.

Question 77

Imagine Tom's annual salary as an assistant store manager is $30,000,he owns a building that rents for $10,000 yearly,and his financial assets generate $1,000 per year in interest.One day,after deciding to be his own boss,he quits his job,evicts his tenants,and uses his financial assets to establish a bicycle repair shop.To run the business,he outlays $15,000 in cash to cover all the costs involved with running the business,and earns revenues of $50,000.Which of the following statements is true?

A) Tom has an opportunity cost of $41,000.
B) Tom earns an accounting profit of $35,000.
C) Tom experiences an economic loss of $6000.
D) All of these are true.

Question 78

When economic profits are negative,accounting profits could be:

A) positive.
B) negative.
C) zero.
D) All of these are possible.

Question 79

Imagine Tom's annual salary as an assistant store manager is $30,000,he owns a building that rents for $10,000 yearly,and his financial assets generate $1,000 per year in interest.One day,after deciding to be his own boss,he quits his job,evicts his tenants,and uses his financial assets to establish a bicycle repair shop.To run the business,he outlays $15,000 in cash to cover all the costs involved with running the business,and earns revenues of $50,000.Tom should:

A) close his shop and go back to what he was doing before with his time and assets, because it was earning him $6,000 more than he's earning now.
B) keep his shop going because he's earning a healthy $35,000 a year.
C) keep his shop going because he's earning $5,000 more than his salary before.
D) None of these is true.

Question 80

When accounting profits are negative,economic profits could be:

A) positive.
B) negative.
C) zero.
D) All of these are possible.