Question 1

In the long run:

Accepted Answer

In the long run, all inputs can be varied and no inputs are fixed, allowing firms to adjust all of their resources and production capacity.

Question 2

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her implicit costs of the new business include:

Accepted Answer

Implicit costs are the opportunity costs of using resources that a firm already owns, rather than the out-of-pocket costs. Rachel's forgone salary of $42,000 is an implicit cost because it represents the income she is giving up by not working as a graphic artist for another employer.

Question 3

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her explicit costs for her new business include:

Accepted Answer

The answer of Rachel left her job as a graphic...

Question 4

Implicit and explicit revenues minus implicit and explicit costs equals:

Accepted Answer

The equation given represents the calculation for economic profit, which takes into account both explicit (monetary) and implicit (non-monetary) costs. Accounting profit only takes into account explicit costs, so it would not account for any implicit costs. Zero profit would occur if the revenues and costs balance out exactly, but this is not the same as economic profit. Implicit profit is not a commonly used term in economics.

Question 5

Long-run decisions are:

Accepted Answer

In the long run, all inputs are considered variable, allowing firms to adjust all factors of production. This flexibility means decisions are not constrained by fixed inputs, unlike in the short run where some inputs are fixed.

Question 6

In the short run:

Accepted Answer

In the short run, certain inputs can be adjusted or varied (variable) while others cannot be altered (fixed). For example, a bakery can vary the amount of flour and labor it uses to produce bread in the short run, but it cannot change the size of its oven or the equipment it has available. Therefore, some inputs are variable and some inputs are fixed in the short run.

Question 7

A regional airline owns 10 aircraft and employs 20 pilots. The airline makes an average of three trips per day with each of its 10 aircraft. The aircraft and their ground crews are idle part of the day. Minimum rest requirements for its pilots mean that if the airline wants to increase its flights, it must hire more pilots. The decision to hire more pilots is:

Accepted Answer

The decision to hire more pilots is a short-run decision because the number of aircraft is held constant while the labor input (pilots) is changed. If the airline wanted to increase the number of flights without hiring more pilots, it could potentially increase the utilization of its existing pilots by reducing their idle time or increasing the number of trips each aircraft makes per day. However, since the minimum rest requirements for pilots must be met, hiring more pilots is the only way to increase the number of flights in the short run. Long-run decisions involve changing both inputs, such as investing in more aircraft and reorganizing the entire airline's operations.

Question 8

The difference between economic profit and accounting profit is equal to:

Accepted Answer

The answer of The difference between economic profit and accounting...

Question 9

Economic profit is:

Accepted Answer

Economic profit takes into account both implicit and explicit revenues and costs. Implicit costs refer to non-monetary opportunity costs, such as the cost of forgoing an alternative use of resources, while explicit costs refer to measurable expenses, such as wages and rent. Therefore, option C is the most comprehensive definition of economic profit.

Question 10

In the short run:

Accepted Answer

In the short run, some inputs are fixed which means that firms cannot adjust their quantity. This limits the flexibility of firms and their choice of input combinations. Therefore, the correct choice is D.

Question 11

Which of the following is an example of a short-run decision?

Accepted Answer

A short-run decision is a decision that a business can make in a relatively short period, typically within a year. Option B of the four choices is an example of a short-run decision, as it involves the decision to increase the workforce in the short run. The other options involve long-run decisions that could have long-term consequences for the business.

Question 12

The reason economists and accountants have problems using cost analysis in the real world is that:

Accepted Answer

Economists and accountants often focus on explicit costs, which are easily measurable and show up in accounting profits. However, implicit costs, such as the opportunity cost of a manager's time or the value of resources used in a project that could have been used elsewhere, are not always easily measurable or reflected in accounting profits. Despite this, implicit costs can still play a significant role in managerial decision-making, making it difficult to rely solely on cost analysis in the real world.

Question 13

A production table can be used to determine:

Accepted Answer

A production table shows the relationship between inputs and outputs, allowing a firm to determine how much output can be produced from a given quantity of inputs. It does not provide information on profits, costs, or consumer demand.

Question 14

Which of the following is the best example of a long-run decision?

Accepted Answer

A long-run decision involves a decision that affects the firm over a period of time in which all factors are variable. Investing in robotic equipment to develop a more cost-effective production technique is a long-run decision as it will have a significant impact on the company's production capabilities over a longer period of time. The other options are more short-term decisions that do not involve significant changes in factors such as labor or capital.

Question 15

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her total costs of the new business include:

Accepted Answer

Rachel's total costs for the new business include both the expenses incurred for office space, equipment, and supplies as well as her forgone salary of $42,000 per year. This is because in addition to the startup costs of the business, Rachel is also giving up the income she would have earned at her previous job.

Question 16

Short-run decisions are:

Accepted Answer

Short-run decisions are constrained because some inputs are fixed (e.g. plant, machinery, lease agreements) while others are variable (e.g. labor, raw materials). This means that the decision-maker cannot easily adjust all inputs to maximize profits or minimize costs, therefore, the decision-making process must take into account the fixed inputs and their effect on the overall outcome.

Question 17

Implicit cost refers to:

Accepted Answer

Implicit costs refer to the opportunity cost of the factors of production provided by the owners of the firm, such as the salary a business owner could have earned if they worked for someone else instead of starting their own business. It does not refer to the amount received for selling the product or service or increase in the value of assets. The salary paid to factors of production is an explicit cost.

Question 18

Robert withdrew $100,000 from an account that paid 10 percent annual interest and used the funds to purchase real estate. After one year he sold the property for $120,000. The accounting profit on this deal was:

Accepted Answer

The accounting profit is calculated as the revenue earned minus the cost of the investment. In this case, the revenue is $120,000 and the cost of the investment is $100,000. Therefore, the accounting profit is $20,000.

Question 19

Can accounting profit be positive while economic profits are negative?

Accepted Answer

Accounting profit only considers explicit costs, while economic profit considers both explicit and implicit costs (opportunity costs). Therefore, it is possible for a company to have a positive accounting profit but a negative economic profit if total revenue covers explicit costs but not opportunity costs.

Question 20

Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. If he hires a fourth driver, he can schedule breaks and lunch hours so that all three vans are in constant use, allowing him to increase deliveries per day from 60 to 75. It will cost an additional $75 per day to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60 deliveries per day:

Accepted Answer

The marginal cost per delivery of increasing output beyond 60 deliveries per day would be the additional cost of hiring the fourth driver divided by the increase in deliveries per day.

Marginal cost per delivery = Additional cost / Increase in deliveries per day

The additional cost of hiring the fourth driver is $75 per day. The increase in deliveries per day is 15 (from 60 to 75).

Marginal cost per delivery = $75 / 15 = $5

Therefore, the marginal cost per delivery of increasing output beyond 60 deliveries per day is $5.

Quiz 11: Production and Cost Analysis I

In the long run:

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her implicit costs of the new business include:

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her explicit costs for her new business include:

Implicit and explicit revenues minus implicit and explicit costs equals:

Long-run decisions are:

In the short run:

The difference between economic profit and accounting profit is equal to:

Economic profit is:

In the short run:

Which of the following is an example of a short-run decision?

The reason economists and accountants have problems using cost analysis in the real world is that:

A production table can be used to determine:

Which of the following is the best example of a long-run decision?

Rachel left her job as a graphic artist, where she earned $42,000 per year, to open her own graphic arts firm. Her total costs of the new business include:

Short-run decisions are:

Implicit cost refers to:

Robert withdrew $100,000 from an account that paid 10 percent annual interest and used the funds to purchase real estate. After one year he sold the property for $120,000. The accounting profit on this deal was:

Can accounting profit be positive while economic profits are negative?