Question 1

A firm's basic goal is best described as

Accepted Answer

The primary goal of most firms is to maximize profit, which is the difference between total revenue and total costs.

Question 2

Profit maximization

Accepted Answer

Profit maximization increases a firm's financial health and competitiveness, enhancing its chances of survival in the market.

Question 3

Wanda takes $3,000 from her savings account that pays 5 percent interest per year and uses the funds to purchase a computer for $3,000 for her business. At the end of the year the computer is worth $2,000. Wanda pays an implicit rental rate of ________ a year.

Accepted Answer

The implicit rental rate is the opportunity cost of using the funds. Wanda loses $1,000 in depreciation ($3,000 - $2,000) and $150 in interest ($3,000 * 5%). Total implicit rental rate is $1,150.

Question 4

Costs as measured by accountants generally does NOT include

Accepted Answer

The answer of Costs as measured by accountants generally does...

Question 5

The most important goal of the firm is to

Accepted Answer

The primary goal of a firm is to maximize its profits, as this ensures the firm's sustainability and ability to provide returns to its shareholders.

Question 6

The implicit rental rate for capital is

Accepted Answer

The implicit rental rate for capital is considered an opportunity cost because it represents the potential income that could have been earned if the capital was used in its next best alternative use.

Question 7

The implicit rental rate for capital includes the

Accepted Answer

The implicit rental rate for capital includes the opportunity cost of using the capital, which is the interest income forgone by purchasing the piece of capital equipment instead of investing the money elsewhere.

Question 8

Economic depreciation is the

Accepted Answer

Economic depreciation refers to the change in the market value of capital over a given period, reflecting the loss in value due to wear and tear, obsolescence, or other factors.

Question 9

The difference between the market price of a new car used by a firm and the market price of the same car one year later is known as

Accepted Answer

Economic depreciation refers to the decrease in the market value of an asset over time, such as a car, due to factors like wear and tear, obsolescence, or changes in market demand.

Question 10

Which of the following is part of a firm's opportunity costs? I. wages
II) utility costs
III) interest on a bank loan
IV) interest forgone on funds used to buy capital equipment

Accepted Answer

Opportunity costs include all costs of using resources for a particular purpose, including explicit costs like wages, utility costs, and interest on loans, as well as implicit costs like interest forgone on funds used for capital equipment.

Question 11

Which of the following costs are part of a firm's opportunity costs? I. costs for resources bought in markets
II) costs for resources the firm owns
III) costs for resources supplied by the owner

Accepted Answer

Opportunity costs include all costs associated with the use of resources, whether they are purchased, owned, or supplied by the owner, as they represent the value of the next best alternative foregone.

Question 12

An electrician quits her current job, which pays $40,000 per year. She can take a job with another firm for $45,000 per year or work for herself. The opportunity cost of working for herself is

Accepted Answer

The opportunity cost of working for herself is the salary she forgoes by not taking the next best alternative, which is the $45,000 job.

Question 13

Which of the following are two components of the opportunity cost of using capital already owned by the firm?

Accepted Answer

Economic depreciation and forgone interest are the two components of the opportunity cost of using capital already owned by the firm. Economic depreciation accounts for the loss in value of the capital over time, while forgone interest represents the potential earnings from investing the capital elsewhere.

Question 14

A firm's opportunity costs

Accepted Answer

Opportunity costs include the cost of using resources owned by the firm, as they represent the potential benefits the firm foregoes by using its own resources instead of renting or selling them.

Question 15

Firms use incentives to pursue their most fundamental goal, which is to maximize

Accepted Answer

Firms primarily aim to maximize profits, as it is the fundamental goal that drives business decisions and ensures long-term sustainability and growth.

Question 16

If instead of working on his own as a consultant making $25,000, Joe takes a job at a bank, the $25,000 is

Accepted Answer

The $25,000 is an opportunity cost because it represents the income Joe foregoes by choosing to work at the bank instead of continuing his consulting work.

Question 17

Over a given period, economic depreciation is the change in capital equipment's

Accepted Answer

Economic depreciation refers to the decrease in the market value of capital equipment over time due to wear and tear, obsolescence, or other factors.

Question 18

Tudor's Deli and Catering could have sold their delivery van on December 31, 2010 for $16,000. If they could sell the same van on December 31, 2011, for $13,000, then the economic depreciation in 2011 for this van

Accepted Answer

Economic depreciation is calculated as the difference in the market value of an asset from one period to the next. Here, it is $16,000 (2010) - $13,000 (2011) = $3,000.

Question 19

________ is the change in market value of capital over a given period.

Accepted Answer

Economic depreciation refers to the change in the market value of capital over a given period, reflecting the loss in value due to factors like wear and tear, obsolescence, or market conditions.

Question 20

Firms that survive in the long run are usually those that

Accepted Answer

Firms that survive in the long run are typically those that can earn sustainable profits, as this allows them to reinvest in their operations, adapt to market changes, and maintain competitiveness.

Quiz 10: Organizing Production