Question 1

If opportunity costs are ignored:

Accepted Answer

The answer of If opportunity costs are ignored:
...

Question 2

Diseconomies of scale are present when the long run average total cost of production declines as output expands.

Accepted Answer

Diseconomies of scale occur when long run average total cost increases as output expands, not decreases.

Question 3

Which of the following is an implicit cost to Mondo Manufacturing, Inc.?

Accepted Answer

Implicit costs are non-monetary opportunity costs. Depreciation charges represent the cost of using company-owned assets, which is an implicit cost as it reflects the opportunity cost of using the assets rather than selling or leasing them.

Question 4

An example of an implicit cost of production is:

Accepted Answer

An implicit cost is a cost associated with a foregone opportunity or alternative use of resources. In this case, the income an entrepreneur could have earned working for someone else is a foregone opportunity, or implicit cost, of starting their own business. The cost of raw materials and labor, on the other hand, are explicit costs that are directly incurred in the production process.

Question 5

What do foregone interest on money invested in a firm, wages paid to production workers, interest paid on bank loans, and the purchase of parts for assembly have in common?

Accepted Answer

All of the mentioned costs are examples of opportunity costs, which are the value of the best alternative foregone when making a decision. Foregone interest is the cost of not investing the money in an alternative opportunity, wages paid to production workers are the cost of not using those resources in an alternative way, interest paid on bank loans is the cost of not using that money for other purposes, and the purchase of parts for assembly is the cost of not using those resources to produce alternative goods. Therefore, all of these costs are the opportunity cost of using resources in a particular way.

Question 6

In the long-run, the firm can only expand output by adding more variable inputs (workers and raw materials).

Accepted Answer

The answer of In the long-run, the firm can only...

Question 7

An important and often ignored opportunity cost is the:

Accepted Answer

Opportunity cost refers to the cost of lost opportunities or benefits that could have been gained from alternative options. In the context of the question, investing funds in a firm may result in missed market opportunities, which could have yielded higher returns or benefits had the funds been invested elsewhere. Therefore, the cost of missed market opportunities is an important and often ignored opportunity cost. The other options presented are not related to opportunity cost.

Question 8

Economists normally assume that the goal of a firm is to:

Accepted Answer

Maximizing profits is the primary goal of a firm in order to ensure long-term sustainability and growth. While selling more output or maximizing sales revenue may be important in the short-term, ultimately maximizing profits is what allows a firm to invest in research and development, expand operations, and remain competitive. Selling products at the highest prices possible may not necessarily lead to the highest profits if it drives away customers or incurs high production costs. Therefore, the best choice is B - maximize profits.

Question 9

Which of the following is not an explicit cost for the owner of a local pizza parlor?

Accepted Answer

The other items listed (flour, cleaning products, pizza ovens, and food preparers) are all direct costs that the owner must pay for in order to produce their product. Other uses for the land that the parlor sits on would be an implicit cost, as it represents a potential alternative use for that resource.

Question 10

Accounting profits are calculated based upon:

Accepted Answer

Accounting profits are calculated using actual cash receipts and actual expenditures of cash. It does not take into account any implicit costs or opportunity costs.

Question 11

An example of an explicit cost of production is:

Accepted Answer

The cost of flour for a baker is a clear and direct expense that is required to produce baked goods. A is incorrect because it refers to an opportunity cost, which is an implicit cost rather than an explicit one. C is also incorrect because it is an opportunity cost of using the land for one purpose instead of another, rather than a direct expense. D is incorrect because one of the choices is an explicit cost.

Question 12

There are two types of costs associated with production: ____ costs that require monetary payments, and ____ costs that do not.

Accepted Answer

Explicit costs are monetary expenses such as wages, rent, and materials, while implicit costs are opportunity costs that do not require monetary payments, such as the value of the owner's time or the foregone opportunity to work on a different project.

Question 13

Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000.If he could have been paid $80,000 working for a computer company, his accounting profit as a contractor was ____ and his economic profit was ____.

Accepted Answer

Accounting profit = Revenues - Explicit Costs
Accounting profit = $120,000 - $70,000
Accounting profit = $50,000

To calculate economic profit, we need to take into account the opportunity cost. Opportunity cost is the value of the best alternative that is forgone. In this case, the best alternative is the $80,000 that he could have earned working for a computer company.

Economic profit = Revenues - Explicit Costs - Implicit Costs
Implicit Costs = Opportunity Cost = $80,000

Economic profit = $120,000 - $70,000 - $80,000
Economic profit = -$30,000

Thus, the accounting profit is $50,000 and the economic profit is -$30,000. Choice A is the best answer.

Question 14

Cassie produces and sells 400 jars of homemade jelly each month for $3 each.Each month, she pays $200 for jars, $150 for ingredients, and uses her own time, with an opportunity cost of $300.Her economic profits each month are:

Accepted Answer

Her total revenue is:

400 jars x $3 per jar = $1200

Her total costs are:

$200 (jars) + $150 (ingredients) + $300 (opportunity cost of her time) = $650

Her economic profits are:

$1200 - $650 = $550

Question 15

A firm has $300 million in revenues and explicit costs of $100 million.If its owners have invested $150 million in the company at an opportunity cost of 10 percent a year, the firm's accounting profit is:

Accepted Answer

The accounting profit is calculated as total revenues minus explicit costs. Here, the accounting profit is $300 million (revenues) - $100 million (explicit costs) = $200 million. Opportunity costs are not considered in accounting profit.

Question 16

Diseconomies of scale are most likely at very low levels of output.

Accepted Answer

Diseconomies of scale refer to the increase in unit costs as output increases beyond a certain level. This occurs due to various factors such as increased coordination difficulties, communication problems, and loss of control. These factors generally come into play at high levels of output, making option B the correct answer. At very low levels of output, economies of scale may not be fully realized, but there is typically no diseconomy of scale yet.

Question 17

An understanding of opportunity costs is important to understanding:

Accepted Answer

Opportunity costs refer to the value of the next best alternative foregone. Understanding opportunity costs is important to assess the economic profitability of a firm because it helps to determine the cost of choosing one alternative over another. This understanding allows businesses to make informed decisions based on the potential costs and benefits of each alternative.

Question 18

A firm which owns its own equipment and is earning positive economic profits

Accepted Answer

A firm that owns its own equipment and is earning positive economic profits is likely earning positive accounting profits as well. This is because economic profits take into account not only explicit costs (which are included in accounting profits) but also implicit costs such as opportunity costs of using the owner's resources, including the equipment. Therefore, if economic profits are positive, it means that the revenue earned by the firm is greater than the total cost (both explicit and implicit) incurred by the firm, which includes a return on the investment in the equipment.

Question 19

Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000.If he could have been paid $80,000 working for a computer company, his:

Accepted Answer

To calculate Brad's accounting profit, we subtract explicit costs from revenues. Therefore, his accounting profit would be $120,000 - $70,000 = $50,000. However, to calculate his economic profit, we need to take into account his opportunity cost. In this case, his opportunity cost is the $80,000 he could have made working for a computer company. Therefore, his economic profit would be $120,000 - $70,000 - $80,000 = -$30,000. This means that he would have been better off financially if he had taken the job with the computer company, so it would be rational for him to stop working as a contractor.

Question 20

An example of an implicit cost of production is:

Accepted Answer

Implicit costs are the opportunity costs of using resources that a firm already owns to produce goods or services. In this case, the opportunity cost of using space in your home for a home office is an implicit cost because it is not a direct monetary expense, but rather the foregone opportunity to use that space for another purpose.

Quiz 6: Production and Costs

If opportunity costs are ignored:

Diseconomies of scale are present when the long run average total cost of production declines as output expands.

Which of the following is an implicit cost to Mondo Manufacturing, Inc.?

An example of an implicit cost of production is:

What do foregone interest on money invested in a firm, wages paid to production workers, interest paid on bank loans, and the purchase of parts for assembly have in common?

In the long-run, the firm can only expand output by adding more variable inputs (workers and raw materials).

An important and often ignored opportunity cost is the:

Economists normally assume that the goal of a firm is to:

Which of the following is not an explicit cost for the owner of a local pizza parlor?

Accounting profits are calculated based upon:

An example of an explicit cost of production is:

There are two types of costs associated with production: costs that require monetary payments, and costs that do not.

Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000.If he could have been paid $80,000 working for a computer company, his accounting profit as a contractor was and his economic profit was .

Cassie produces and sells 400 jars of homemade jelly each month for $3 each.Each month, she pays $200 for jars, $150 for ingredients, and uses her own time, with an opportunity cost of $300.Her economic profits each month are:

A firm has $300 million in revenues and explicit costs of $100 million.If its owners have invested $150 million in the company at an opportunity cost of 10 percent a year, the firm's accounting profit is:

Diseconomies of scale are most likely at very low levels of output.

An understanding of opportunity costs is important to understanding:

A firm which owns its own equipment and is earning positive economic profits

Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000.If he could have been paid $80,000 working for a computer company, his:

An example of an implicit cost of production is: