Deck 12: The Costs of Production

Question 1

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 cost of gasoline
D)All of these would be included in total cost.

Answer 1

All of these would be included in total cost.

Question 2

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.

Answer 2

a sewing machine,and would be included in total cost.

Question 3

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.

Answer 3

All of these are true.

Question 4

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 sum of total costs and total sales.
D)the amount that an individual can spend on disposable goods and services.

Question 5

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.

Question 6

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 7

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 8

Total revenue is:

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

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

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 11

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

Question 12

Total cost can be defined as:

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

Question 13

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

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

Question 14

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

A)To have fun
B)To meet new people
C)To sell as many ice cream cones as possible
D)To maximize his profit

Question 15

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 16

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 17

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 18

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

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

Question 19

Economists assume the central goal of any business is to:

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

Question 20

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 21

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 22

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 23

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

A)a sewing machine.
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 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 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 26

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

A)a sewing machine.
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 27

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 28

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 29

If a firm stops production,then its:

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

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.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 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 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 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 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 34

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 35

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 36

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 37

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 38

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 39

Fixed 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)inputs costs that stay the same price per unit.
D)costs that are negotiated to stay the same throughout the life of a contract.

Question 40

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 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

Economists consider:

A)the opportunity costs involved with a firm's decision.
B)everything the firm gives up in order to produce output.
C)explicit and implicit costs.
D)All of these are true.

Question 43

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 44

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 45

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 46

Explicit costs include:

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

Question 47

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 48

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 49

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 50

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 51

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 52

If a sandwich shop ceases to make 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 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

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 55

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 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

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)explicit cost of $4,500.
B)implicit 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 59

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 60

Tina withdraws $20,000 from her money market account to start up her own house cleaning business.The account earns 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 61

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

Question 62

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

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

Question 63

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 64

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 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 are Winston's implicit costs?

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

Question 66

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 67

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 68

When economic profits are positive,accounting profits could be:

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

Question 69

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 70

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

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

Question 71

When accounting profits are negative,economic profits could be:

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

Question 72

When accounting profits are positive,economic profits could be:

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

Question 73

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 74

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 75

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 76

When economic profits are negative,accounting profits could be:

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

Question 77

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 78

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 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.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 80

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.