Question 1

Money that must be paid for the use of factors of production such as labor and capital is an:

Accepted Answer

The money paid for the use of factors of production such as labor and capital is considered an explicit cost as it involves actual monetary payments to the providers of these factors. Implicit costs, on the other hand, refer to the opportunity costs of using owner-provided resources or forgone alternative uses of a firm's resources. Accounting profit is the total revenue minus explicit costs, while economic profit is the total revenue minus both explicit and implicit costs.

Question 2

Jacquelyn is a student at a major state university.Which factor is NOT an explicit cost of her attending college?

Accepted Answer

The statement "opportunity cost is synonymous with explicit cost" is incorrect. Opportunity cost includes both explicit and implicit costs, but explicit costs are only one component of opportunity cost.

Question 3

The implicit cost of capital is:

Accepted Answer

The implicit cost of capital is the opportunity cost of the capital used by a business. It is the return that the investor can earn from the best alternative investment with the same risk as the investment being evaluated.

Question 4

You own a small deli that sells sandwiches,salads,and soup.Which factor is an implicit cost of the business?

Accepted Answer

An implicit cost is a cost that is not a direct monetary expense but rather an opportunity cost, i.e., the value of the next best alternative. In this case, the job offer the business owner did not accept at a local catering service is an example of an implicit cost because it represents the foregone wages and benefits that the owner could have earned by pursuing that opportunity instead of running the deli. A, C, and D are all examples of explicit costs because they involve direct monetary expenses for wages, supplies, and utilities, respectively.

Question 5

Accounting profit differs from economic profit because:

Accepted Answer

Accounting profit is calculated by deducting explicit costs (direct expenses) from total revenue, while economic profit takes into consideration both explicit and implicit costs (opportunity costs). Economic profit provides a more accurate picture of a firm's profitability as it accounts for the value of the resources that could have been used elsewhere, while accounting profit only considers the expenses that have already been incurred. Therefore, the economic cost is generally higher than the accounting cost, making option D the correct answer.

Question 6

The implicit cost of capital is:

Accepted Answer

The implicit cost of capital is the opportunity cost of using capital in a certain way, such as investing in a particular project or business. It represents the return that could have been earned if the capital had been invested elsewhere. Thus, it is a relevant cost in determining economic profit as it reflects the true cost of using the capital. A and B are incorrect because they refer to explicit costs of using capital rather than the opportunity cost. D is incorrect because the implicit cost of capital is important in determining economic profit.

Question 7

For MOST firms,economic profit is:

Accepted Answer

Economic profit is typically less than accounting profit because it includes both explicit and implicit costs, while accounting profit only includes explicit costs. Implicit costs are the opportunity costs of using resources that the firm already owns, effectively reducing the economic profit.

Question 8

Part of the _____ associated with the Chicago Cubs baseball team is their batting cages used in practice.

Accepted Answer

The batting cages used in practice are a capital resource.

Question 9

In central Florida,the demand for real estate has been increasing rapidly for years.Therefore,the _____ cost of capital is _____ in central Florida's orange groves.

Accepted Answer

The increase in demand for real estate in central Florida has led to an increase in the implicit cost of capital. Implicit costs refer to opportunity costs that are not directly measurable or stated, but are still incurred by choosing one option over another. With the increasing demand for orange groves in central Florida, the implicit cost of investing in these groves is increasing, as the opportunity cost of not investing in another potentially more lucrative option becomes higher.

Question 10

Suppose the Chicago Cubs could rent out Wrigley Field (the field they play on)to local youth leagues for $11,000 per month.The $11,000 per month is the _____ cost of capital.

Accepted Answer

The $11,000 per month is the implicit cost of capital because it represents the opportunity cost of using the field for something other than renting it out to local youth leagues. This cost is not directly paid out but is the foregone income from the next best alternative use of the asset.

Question 11

The dormitories of Eastland College are part of its:

Accepted Answer

The dormitories of Eastland College are part of its capital, which refers to the resources used in the production process, such as buildings, equipment, and other physical assets. The other options do not accurately describe the dormitories' role in the production of education.

Question 12

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

Accounting profit is calculated by subtracting explicit costs from total revenue. Given that the economic profit (which accounts for both explicit and implicit costs) is $50,000, and the implicit costs are $50,000, we add these to find the total revenue minus explicit costs. Therefore, the accounting profit is $200,000 (explicit costs) + $50,000 (economic profit) = $250,000 in revenue - $200,000 (explicit costs) = $50,000 + $50,000 = $100,000.

Question 13

Accountants use only _____ costs in their computations.

Accepted Answer

Accountants use explicit costs in their computations, which are the actual out-of-pocket expenses incurred by a firm, such as wages, rent, and materials. Opportunity costs and implicit costs are not included in these computations. Variable costs are a type of explicit cost that change with the level of production.

Question 14

If the accounting profit for a firm is negative,the:

Accepted Answer

Economic profit takes into account both explicit and implicit costs, while accounting profit only considers explicit costs. Therefore, if accounting profit is negative, it is likely that implicit costs are higher than expected and therefore, economic profit will also be negative.

Question 15

John's accountant tells him that he made a profit of $43,002 running a pottery studio in Orlando.John's wife,an economist,claims John lost $43,002 running his pottery studio.This means his wife is claiming that he incurred _____ in _____ costs.

Accepted Answer

Implicit costs are the opportunity costs of using resources that a firm already owns. John's wife is likely considering the opportunity costs (such as what John could have earned elsewhere with his time and investment) in addition to the explicit (accounting) profit of $43,002. Therefore, the total loss she is claiming includes both the explicit profit and the implicit costs, doubling the amount to $86,004.

Question 16

Suppose a local hardware store has explicit costs of $2 million per year and implicit costs of $44,000 per year.If the store earned an economic profit of $50,000 last year,this means that the store's accounting profit equaled:

Accepted Answer

Accounting profit equals total revenue minus explicit costs. Therefore, accounting profit for the store would be $2.05 million in revenue minus $2 million in explicit costs, which equals $50,000. Adding the implicit costs to the accounting profit gives us the economic profit, which is $50,000 + $44,000 = $94,000.

Question 17

Profit computed without implicit costs is _____ profit.

Accepted Answer

Accounting profit only takes into account explicit costs, such as wages and rent, while ignoring implicit costs, such as opportunity costs and foregone potential earnings.

Question 18

Suppose Eastland College does not have a summer program and could rent out the campus to various summer sports camps for $100,000.The potential revenue of the summer camps represents a(n):

Accepted Answer

The potential revenue from renting out the campus is an implicit cost because it represents the opportunity cost of not utilizing the campus for summer sports camps.

Question 19

Costs that are included in the economic concept of cost but that are NOT explicit costs are:

Accepted Answer

Implicit costs are the opportunity costs of using resources that a firm already owns (such as the time of the owner or the use of their personal property), which do not require any outlay of money. Implicit costs are therefore not reflected in accounting statements but are included in the economic concept of cost. Outlay costs and accounting profits are both explicit costs, while economic profits take both explicit and implicit costs into account.

Question 20

Expenses associated with factors of production may be _____ costs.

Accepted Answer

Expenses associated with factors of production can be implicit (not directly paid out, such as the opportunity cost of using one's own resources), opportunity (the cost of foregone alternatives), or explicit (directly paid out, such as wages or rent).

Quiz 9: Decision Making by Individuals and Firms

Money that must be paid for the use of factors of production such as labor and capital is an:

Jacquelyn is a student at a major state university.Which factor is NOT an explicit cost of her attending college?

The implicit cost of capital is:

You own a small deli that sells sandwiches,salads,and soup.Which factor is an implicit cost of the business?

Accounting profit differs from economic profit because:

The implicit cost of capital is:

For MOST firms,economic profit is:

Part of the _____ associated with the Chicago Cubs baseball team is their batting cages used in practice.

In central Florida,the demand for real estate has been increasing rapidly for years.Therefore,the _ cost of capital is _ in central Florida's orange groves.

Suppose the Chicago Cubs could rent out Wrigley Field (the field they play on) to local youth leagues for $11,000 per month.The $11,000 per month is the _____ cost of capital.

The dormitories of Eastland College are part of its:

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:

Accountants use only _____ costs in their computations.

If the accounting profit for a firm is negative,the:

John's accountant tells him that he made a profit of $43,002 running a pottery studio in Orlando.John's wife,an economist,claims John lost $43,002 running his pottery studio.This means his wife is claiming that he incurred _ in _ costs.

Suppose a local hardware store has explicit costs of $2 million per year and implicit costs of $44,000 per year.If the store earned an economic profit of $50,000 last year,this means that the store's accounting profit equaled:

Profit computed without implicit costs is _____ profit.

Suppose Eastland College does not have a summer program and could rent out the campus to various summer sports camps for $100,000.The potential revenue of the summer camps represents a(n) :

Costs that are included in the economic concept of cost but that are NOT explicit costs are:

Expenses associated with factors of production may be _____ costs.