Deck 4: How Businesses Work

Question 1

The main objective of a business in a market economy is

A) profit maximization.
B) controlling costs.
C) decreasing revenue.
D) managing the production function.

Answer 1

A
Explanation: The main objective of any business in a market economy is profit maximization. That is, the people running a business want to operate it in a way that yields the largest difference between revenues and costs.

Question 2

The long-lived physical equipment and structures that a business uses in its production process are called

A) boot.
B) land.
C) capital.
D) function.

Answer 2

C
Explanation: Capital is another name for all the long-lived physical equipment, software, and structures a business uses in its production process.

Question 3

Cost is what a business receives after subtracting expenses from revenue.

Answer 3

False
Explanation: Cost is what a business pays for its inputs.

Question 4

Inputs used by a business in the production process include

A) revenue.
B) profit.
C) labor.
D) cost.

Question 5

Economists generally assume that the main goal of most businesses in the economy is to

A) be responsible corporate citizens.
B) maximize profits.
C) provide jobs for the local population.
D) Avoid having to make very many decisions.

Question 6

Marginal cost is the added expense of producing one more unit of output.

Question 7

What word describes the money that customers pay for the output of a business?

A) Cost.
B) Revenue.
C) Input.
D) Output.

Question 8

The marginal product is the extra amount of output a firm can generate by adding one more hour of labor (or one more worker).

Question 9

What is the difference between revenue and cost?

A) Production.
B) Input.
C) Output.
D) Profit.

Question 10

Marginal revenue is the additional revenue a business gets from producing or selling one more unit of input.

Question 11

A production function tells you,given the inputs,what the output will be.

Question 12

The hours of work supplied by various types of workers are referred to by economists as

A) labor.
B) production.
C) revenue.
D) cost.

Question 13

What word describes the money that a business pays for its inputs?

A) Cost.
B) Output.
C) Revenue.
D) Production.

Question 14

Revenue is the money that customers pay for the output of a business.

Question 15

Outputs are always goods.

Question 16

What word describes the goods and services that are used to produce outputs for a business?

A) Production.
B) Cost.
C) Revenue.
D) Inputs.

Question 17

The average product is calculated by dividing input by the number of hours worked.

Question 18

What is the economic process of turning inputs into outputs that a business will sell to customers?

A) Revenue.
B) Profit.
C) Profit maximization.
D) Production.

Question 19

Businesses have two types of cost: fixed and variable.

Question 20

Inputs for a business are the goods and services that it sells to its customers.

Question 21

In a simple lawn-mowing business where you have a push mower and labor as input,by adding an additional input in the form of a gas self-propelled mower (capital),what would be the impact on output?

A) Output would remain the same.
B) Output would decrease.
C) Output would increase.
D) Labor would decrease.

Question 22

___________ is the amount of money a company receives for selling its product or service.

A) Profit
B) Revenue
C) Cost
D) Average marginal revenue

Question 23

Variable costs are also known as

A) long-term costs.
B) short-term costs.
C) production costs.
D) variable average product.

Question 24

The goods or services purchased by a business for immediate use in the production process are known as

A) intermediate inputs.
B) intermediate outputs.
C) production inputs.
D) production processes.

Question 25

The added expense of producing one more unit of output is called the

A) marginal product.
B) marginal cost.
C) average cost.
D) production cost.

Question 26

Economists think of a business as a machine,where you put inputs in one end and get outputs from the other end.This metaphor is called the

A) revenue process.
B) cost process.
C) profit process.
D) production function.

Question 27

Many times,technology is _____ in the equipment a company buys.

A) embodied
B) not present
C) produced
D) part of the production process

Question 28

The extra amount of output a business can generate by adding one more hour of labor is called

A) Marginal revenue.
B) Labor input.
C) Marginal cost.
D) Marginal product.

Question 29

Variable costs are relevant for

A) long-term strategic planning.
B) short-term everyday decision making.
C) businesses only.
D) calculating fixed cost percentages.

Question 30

The total cost of production is determined by adding which of the following costs?

A) Labor, capital and land, intermediate inputs, and accumulating business know-how.
B) Labor, capital, revenue, and marginal product.
C) Labor, land, capital, and revenue.
D) Labor, business know-how, capital, and land.

Question 31

An example of variable costs is

A) rent on the building a business occupies.
B) loans on equipment purchased.
C) hourly labor.
D) insurance premiums to protect assets.

Question 32

In a simple grass-mowing business,the lawn mower and labor would be

A) outputs.
B) inputs.
C) production.
D) profit.

Question 33

______ shows the potential cost for each level of output.

A) The product function
B) The average marginal cost
C) The cost function
D) The production process

Question 34

The short-term cost function assumes that

A) All variable costs are equal.
B) Fixed costs can be easily changed.
C) Fixed costs can't be changed.
D) Variable costs can be fixed.

Question 35

Output divided by the number of hours worked or by the number of workers is called

A) average input.
B) average product.
C) marginal product.
D) marginal revenue.

Question 36

Marginal cost generally ________ quantity produced.

A) rises with
B) decreases with
C) stays the same with varying
D) is not related to

Question 37

The price of labor per unit times the amount of labor used is called

A) marginal cost.
B) marginal labor.
C) labor cost.
D) labor input.

Question 38

Average product is not as reliable an indicator of how a business is doing as it used to be because of

A) variable expenses.
B) fixed expenses.
C) outsourcing labor.
D) outsourcing profit.

Question 39

If you add too many inputs,your business may experience

A) increasing marginal revenue.
B) diminishing marginal product.
C) diminishing cost input.
D) accelerated product function.

Question 40

The technology or knowledge necessary for the production process is called

A) Production input.
B) Business know-how.
C) Technology input.
D) Knowledge input.

Question 41

In the process of long-term profit maximization,the business makes decisions under the assumption that it can

A) change only short-term costs.
B) change only long-term costs.
C) vary all the inputs.
D) eliminate all unnecessary expenses.

Question 42

If Sara can produce 25 muffins for a total cost of $15,but her production process is subject to increasing marginal costs,which of the following could be the total cost of producing 100 muffins?

A) $15.
B) $17.50.
C) $60.
D) $80.

Question 43

The difference between long-term and short-term profit maximization is that in the short term,

A) businesses focus on achieving as much profit as they can, given that fixed costs cannot be changed.
B) businesses focus on achieving as much profit as they can, given that they can vary all inputs, even to the point of shutting down.
C) businesses are not able to maximize profits because they can vary all of their inputs, making the calculations too complicated.
D) businesses focus on achieving as much profit as they can, but in the long term, businesses always eventually shut down.

Question 44

_____________ is the added revenue from producing and selling one more unit of output.

A) Added revenue
B) Marginal profit
C) Marginal cost
D) Marginal revenue

Question 45

Explain how marginal product can be negative.

Question 46

The additional money a business gets from producing and selling one more unit of output is

A) marginal product.
B) long-term revenue.
C) marginal revenue.
D) average profit.

Question 47

One strategy for long-term profit maximization is

A) innovation.
B) offering consistently higher prices.
C) being the lowest-price competitor.
D) utilization of private business incubators.

Question 48

A profit-maximizing business will increase production as long as

A) marginal cost exceeds marginal revenue.
B) marginal price exceeds average product.
C) average product exceeds marginal price.
D) marginal revenue exceeds marginal cost.

Question 49

Profit is the difference between revenue and

A) marginal product.
B) average product.
C) long-term costs.
D) cost.

Question 50

_________ is the added cost to produce one more unit of output.

A) Marginal product
B) Marginal revenue
C) Average cost
D) Marginal cost

Question 51

In short-run profit maximization,businesses focus on the ______,holding fixed costs constant.

A) long-term cost function
B) average input cost
C) short-term cost function
D) short-term production function

Question 52

If June can earn $1,500 in revenue from painting two houses,how much can she earn in revenue from painting three houses? (Assume she is just one housepainter in a large market of housepainters,and that she can easily find a third customer.)

A) Exactly $2,250.
B) Less than $2,250.
C) More than $2,250.
D) Exactly $4,500.

Question 53

When a business expands production and increases sales,what generally happens to revenue?

A) Revenue falls because costs also rise.
B) Revenue rises because the business is selling more output.
C) Revenue is unaffected by the level of production or the number of sales.
D) It depends on whether the firm has increasing or diminishing marginal revenue.

Question 54

Theodore can make 6 pizzas in one hour.If Theodore's labor has a diminishing marginal product,what must be true about the number of pizzas that Theodore can make in three hours?

A) It must be less than 12.
B) It must be less than 18.
C) It must be equal to 18.
D) It must be greater than 18.

Question 55

What happens to the marginal product of labor if more capital is added to a production process?

A) More capital generally causes the marginal product of labor to rise.
B) More capital will cause the marginal product of labor not to diminish.
C) More capital generally causes the marginal product of labor to fall.
D) More capital will affect the marginal product of capital, not the marginal product of labor.

Question 56

Which of the following is an example of a profit-maximizing business?

A) A charitable organization that provides medical care for disaster victims.
B) A local government that provides a police force.
C) A household in which a family member takes care of the children.
D) An accountant who makes her living preparing tax returns for other people.

Question 57

The __________ summarizes the output of the business,given the level of inputs.

A) marginal function
B) average cost
C) marginal revenue
D) production function

Question 58

As the market price of a good rises,businesses will respond by producing more of that good because

A) the rising price causes marginal cost to fall.
B) marginal cost exceeds marginal revenue after the price increase.
C) laws and regulations require them to do so.
D) marginal revenue exceeds marginal cost after the price increase.

Question 59

Fixed costs are also known as __________ costs because they are much harder for a business to change.

A) short-term
B) long-term
C) variable
D) static

Question 60

Inputs to production do NOT include

A) labor.
B) land.
C) average product.
D) business know-how.

Question 61

If a landscaper can hire an additional employee for $300 weekly,what is one concept the landscaper could use to determine whether hiring this employee is a good idea?

Question 62

Why would a business use consider both short-term and long-term cost functions in planning?

Question 63

Explain,with an example,the type of short-term decisions retailers often have to make.

Question 64

Explain one of the ways a business may find more revenue from the product or service it sells.