Question 1

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 represents the return that could have been earned but was foregone in favor of the current investment. This cost is not reflected in accounting statements, but it is a crucial factor in the decision-making process for businesses.

Question 2

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 3

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

Accepted Answer

Implicit costs are the costs of the resources that the business owner provides to the business. In this case, John's wife is claiming that he incurred $43,002 in implicit costs, which means that he used resources worth $43,002 in his pottery studio.

Question 4

Suppose that 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 equalled:

Accepted Answer

The answer of Suppose that a local hardware store has...

Question 5

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 6

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

Accepted Answer

Implicit costs are costs that are not reflected in actual payments but are still considered in economic analysis, such as opportunity costs of forgone income or time. Outlay costs (A) and accounting profits (B) are explicit costs that are reflected in actual payments and accounting records. Economic profits (D) are total revenue minus both explicit and implicit costs.

Question 7

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

Accepted Answer

The statement "Opportunity cost is synonymous with explicit cost" is incorrect. Opportunity cost includes both explicit and implicit costs, whereas explicit costs are monetary payments or purchases made in order to obtain a good or service.

Question 8

Accountants use only _____ costs in their computations.

Accepted Answer

Accountants use only explicit costs in their computations, which includes all direct and indirect costs that can be easily identified and quantified in monetary terms. Opportunity costs are not considered as they are not actual cash outflows, while implicit and variable costs may be relevant for decision-making but are not used in traditional accounting applications.

Question 9

In southern Ontario,the demand for real estate has been increasing rapidly for years.Therefore,the _____ cost of capital is _____ in southern Ontario's peach groves.

Accepted Answer

The phrase "demand for real estate has been increasing rapidly" suggests that there is a high demand for land in southern Ontario, which in turn implies that the implicit cost of capital (i.e., the opportunity cost of using money to purchase real estate instead of investing it elsewhere) is increasing in the region's peach groves. Therefore, choice B - implicit cost of capital is increasing - is the best answer.

Question 10

The dormitories of York University are part of its:

Accepted Answer

The dormitories of York University are part of its capital, which refers to the physical and financial assets that a business or organization uses to produce goods and services.

Question 11

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

Accepted Answer

If the accounting profit for a firm is negative, it indicates that the total revenue earned by the firm is not enough to cover all its expenses including explicit and implicit costs. Therefore, the economic profit which takes into account implicit costs (i.e. opportunity cost of using resources) must be even lower or negative. Hence, the best choice is B i.e. economic profit must be negative.

Question 12

Accounting profit differs from economic profit because:

Accepted Answer

Accounting profit only includes explicit costs such as materials, labor, and rent, while economic profit includes both explicit and implicit costs such as opportunity cost of resources used in production. Therefore, economic profit is generally lower than accounting profit.

Question 13

Suppose that the Toronto Blue Jays could rent out the Rogers Centre (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 an implicit cost because it represents the opportunity cost of not renting out the Rogers Centre to local youth leagues. Implicit costs are the potential income lost when a resource is not utilized in its next best alternative use.

Question 14

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).

Question 15

The implicit cost of capital is:

Accepted Answer

The implicit cost of capital refers to the opportunity cost of using capital in a particular business venture. It represents the return that could have been earned if the capital had been invested in an alternative opportunity with the same level of risk. Therefore, option C is the correct choice. Option A and B are incorrect because they refer to explicit costs related to leasing or buying machines, whereas the question is specifically asking about implicit costs. Option D is incorrect because the implicit cost of capital is relevant for determining economic profit as it is a necessary component of understanding the true cost of using capital in a business.

Question 16

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

Accepted Answer

The job offer that the owner didn't accept at a local catering services is an implicit cost as it represents the foregone income that could have been earned.

Question 17

Suppose that York University does not have a summer programme 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 camps.

Question 18

Suppose that 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 equalled:

Accepted Answer

Economic profit is calculated as accounting profit minus implicit costs. Given the economic profit is $50,000 and implicit costs are $50,000, the accounting profit must be $100,000.

Question 19

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

Accepted Answer

Explicit cost refers to the monetary expenses incurred by a firm in acquiring or using the factors of production. Payments for labor and capital are explicitly stated and accounted for in the firm's financial records. Implicit cost, on the other hand, refers to the opportunity cost of using resources owned by the firm, such as the foregone alternative uses of the owner's time and funds. Accounting profit only takes explicit costs into account while economic profit takes both explicit and implicit costs into consideration.

Question 20

Part of the _____ associated with the Toronto Blue Jays baseball team is their batting cages used in practice.

Accepted Answer

The batting cages used in practice are a type of physical capital, which is one of the four factors of production. Labour refers to the human resources, land refers to the natural resources, and entrepreneurship refers to the ability to innovate and take risks in business.

Quiz 9: Decision Making by Individuals and Firms

The implicit cost of capital is:

For MOST firms,economic profit is:

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

Suppose that 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 equalled:

Profit computed without implicit costs is _____ profit.

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

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

Accountants use only _____ costs in their computations.

In southern Ontario,the demand for real estate has been increasing rapidly for years.Therefore,the _ cost of capital is _ in southern Ontario's peach groves.

The dormitories of York University are part of its:

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

Accounting profit differs from economic profit because:

Suppose that the Toronto Blue Jays could rent out the Rogers Centre (the field they play on) to local youth leagues for $11 000 per month.The $11 000 per month is the _____ cost of capital.

Expenses associated with factors of production may be _____ costs.

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?

Suppose that York University does not have a summer programme and could rent out the campus to various summer sports camps for $100 000.The potential revenue of the summer camps represents a(n) :

Suppose that 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 equalled:

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

Part of the _____ associated with the Toronto Blue Jays baseball team is their batting cages used in practice.