Question 1

A firm's opportunity cost includes
A)the cost of using resources bought in the market and owned by the firm only.
B)the cost of using resources bought in the market,owned by the firm,and supplied by the firm's owner.
C)only costs that are paid in cash or by cheque.
D)the cost of using resources supplied by the firm's owner only.
E)economic profit.

Accepted Answer

Opportunity cost includes the cost of all resources used, including those bought in the market, owned by the firm, and supplied by the firm's owner. It also includes non-cash costs like foregone opportunities and potential earnings. E is not a valid choice as it is not a cost, but a measure of profit. A, C, and D are incorrect as they are too narrow in scope and do not include all relevant costs.

Question 2

The long run is a time frame in which
A)the firm can hire all the workers it wants to employ,but it does not have sufficient time to buy more equipment.
B)the firm is able to maximize revenue.
C)the firm may want to build a bigger plant,but cannot do so.
D)economic efficiency is achieved.
E)the quantities of all factors of production can be varied.

Accepted Answer

In the long run, the firm has the flexibility to vary the quantities of all factors of production, including hiring more workers and buying more equipment. This allows the firm to optimize its production process and achieve economic efficiency. The other choices presented are either incorrect or do not fully capture the essence of the long run.

Question 3

Plant refers to those factors of production
A)that are too expensive for the firm to purchase.
B)that must be held in storage for at least one year.
C)that are fixed in the short run.
D)that have a decreasing marginal product as more of the factor is used.
E)which can be purchased only in fixed quantity lots.

Accepted Answer

Plant refers to those factors of production that are fixed in the short run, meaning they cannot be easily changed or adjusted to fluctuations in demand. This includes items such as buildings, land, machinery, and equipment.

Question 4

Normal profit is the ________.Normal profit ________ part of a firm's opportunity cost.
A)return that an entrepreneur can expect to receive on average;is
B)profit used by the Canada Revenue Agency to calculate tax owing;is
C)profit used by the Canada Revenue Agency to calculate tax owing;is not
D)return that an entrepreneur can expect to receive on average;is not
E)difference between total revenue and total cost;is

Accepted Answer

Normal profit is the return that an entrepreneur can expect to receive on average for their investment and effort. It is considered part of a firm's opportunity cost because it represents the minimum amount the entrepreneur must earn to make the business venture worthwhile, as opposed to investing their time and resources elsewhere.

Question 5

Economic depreciation is
A)the same as depreciation calculated by an accountant.
B)equal to economic profit minus normal profit.
C)the change in the market price of capital over a given period.
D)the deterioration of the physical appearance of a capital.
E)paid in cash.

Accepted Answer

Economic depreciation refers to the decrease in the market value of capital over a period, not to its physical deterioration or accounting depreciation methods.

Question 6

Which one of the following is included in the implicit rental rate of capital?
A)economic depreciation
B)the cost of electricity
C)the cost of raw materials
D)the cost of labour
E)the cost of heating

Accepted Answer

The implicit rental rate of capital includes economic depreciation, which represents the decrease in the value of the capital asset over time due to wear and tear and obsolescence. The costs of electricity, raw materials, labor, and heating are not included in this rate.

Question 7

Which of the following is part of a firm's opportunity cost of production? I.wages
II.utility costs
III.interest on a bank loan
IV.interest forgone on funds used to buy capital equipment
A)I only
B)II only
C)III only
D)IV only
E)I,II,III,and IV

Accepted Answer

Opportunity cost includes all costs associated with a decision, not just explicit costs like wages, utility costs, and interest on loans, but also implicit costs such as the interest forgone on funds used to buy capital equipment.

Question 8

Economic profit equals total revenue minus
A)the cost of resources bought in the market.
B)the implicit rental rate.
C)the opportunity cost of production.
D)the cost of resources supplied by the owner.
E)the cost of resources owned by the firm.

Accepted Answer

Economic profit takes into account the opportunity cost of production, which includes both explicit costs (such as the cost of resources bought in the market) and implicit costs (such as the cost of resources supplied by the owner or owned by the firm). Therefore, option C is the best choice as it encompasses all relevant costs.

Question 9

The short run is a time frame in which
A)the firm is not able to hire more workers.
B)the amount of output produced is fixed.
C)there is a shortage of most factors of production.
D)at least one factor of production is fixed.
E)there is not enough time to make all of the decisions necessary to maximize profit.

Accepted Answer

In the short run, at least one factor of production is fixed, while others may vary. This means that the firm cannot adjust all inputs to its production process in the short run, and must make decisions based on the fixed input.

Question 10

The difference in the market value of a new van owned by a firm and the market value of the same van one year later is
A)economic depreciation.
B)physical depreciation.
C)economic deterioration.
D)physical deterioration.
E)conventional depreciation.

Accepted Answer

The difference in market value of a new van owned by a firm and the market value of the same van one year later is referred to as economic depreciation. This is due to factors such as wear and tear, obsolescence, and changes in market demand. Physical depreciation and physical deterioration both refer to the physical wear and tear of the van, while economic deterioration is a broader term that includes factors beyond just physical wear and tear. Conventional depreciation is a term used in accounting to refer to the systematic allocation of the cost of an asset over its useful life.

Question 11

In general, (1)opportunity cost is greater than accounting cost.
(2)opportunity cost is less than accounting cost.
(3)economic profit is greater than accounting profit.
(4)economic profit is less than accounting profit.
A)1 only
B)1 and 3
C)1 and 4
D)2 and 3
E)2 and 4

Accepted Answer

Opportunity cost refers to the cost of foregone alternatives, which is not included in accounting cost. Therefore, opportunity cost is generally greater than accounting cost. Economic profit takes into account opportunity cost, while accounting profit only considers explicit costs. Therefore, economic profit is generally less than accounting profit.

Question 12

A firm's goal is to
A)maximize revenue.
B)maximize customer satisfaction.
C)maximize profit.
D)minimize costs.
E)minimize risk.

Accepted Answer

The primary goal of a business is to make a profit, which is achieved by maximizing revenue and minimizing costs. While customer satisfaction and risk management are important factors, they are not the primary goal of a business. Therefore, option C is the best choice.

Question 13

Flora's Flowers bought a new van last year for $10,000.It can now sell the van for $8,500.To buy this year's model of the same van it would have to pay $11,000.What is the implicit rental rate using the car for one year at a zero percent interest rate?
A)$2,500
B)$3,500
C)$1,000
D)$10,000
E)$1,500

Accepted Answer

The answer of Flora's Flowers bought a new van last...

Question 14

Flora's Flowers bought a new van last year for $10,000.It can now sell the van for $8,500.To buy this year's model of the same van it would have to pay $11,000.What is the one-year amount of economic depreciation?
A)$2,500
B)$1,500
C)$1,000
D)$10,000
E)$3,500

Accepted Answer

Economic depreciation is the decrease in value of an asset due to market factors, such as changes in supply and demand or technology. In this case, the van has decreased in value from $10,000 to $8,500, which is a decrease of $1,500 due to market factors. The fact that a new model is available for $11,000 is not relevant to economic depreciation.

Question 15

Flora's Flowers bought a new van last year for $10,000.It can now sell the van for $8,500.To buy this year's model it would have to pay $11,000.Flora's also had to take out a $9,000 loan to buy the van which had to be paid back in yearly installments of $3,300 per year over three years.What is the implicit rental rate of the first year's use of the van?
A)$2,800
B)$1,300
C)$1,800
D)$13,300
E)$4,800

Accepted Answer

The implicit rental rate is the cost of using the asset for one year. To calculate this, we need to consider the cost of buying the van, the amount it can be sold for, and any additional costs or income associated with owning the van, such as the loan payments and maintenance expenses.

First, let's calculate the total cost of owning the van for one year:
- Purchase price: $10,000
- Loan payments: $3,300
- Depreciation (the decrease in value of the van over one year): ($10,000 - $8,500) = $1,500

Total cost: $10,800

Now, let's calculate the implicit rental rate:
Implicit rental rate = Total cost / Purchase price
Implicit rental rate = $10,800 / $10,000
Implicit rental rate = 1.08

Multiplying by 100 to convert to a percentage, the implicit rental rate is 108%.

Therefore, the answer is C.

Question 16

The implicit rental rate
A)is the firm's opportunity cost of using the capital it owns.
B)is paid with cash.
C)is the depreciation measured by an accountant.
D)equals the forgone interest on an alternative investment.
E)is economic depreciation.

Accepted Answer

The implicit rental rate is the opportunity cost of using the capital that the firm owns, which means the benefit that the firm could have earned by using the capital in an alternative investment. It is not paid with cash, it is not a measure of depreciation by an accountant, and it may not equal forgone interest on an alternative investment or economic depreciation.

Question 17

The implicit rental rate to a firm of owning a building is
A)the sum of economic depreciation and forgone interest.
B)economic depreciation only.
C)forgone interest only.
D)the cost of using an alternative building.
E)the rent paid on the building.

Accepted Answer

The implicit rental rate to a firm of owning a building includes both economic depreciation (the decrease in value of the property over time due to wear and tear and aging) and forgone interest (the interest that could have been earned if the money used to purchase the building had been invested elsewhere). This represents the economic cost to the firm of using the building, equivalent to what it would cost to rent a similar building.

Question 18

Which one of the following statements about the implicit rental rate of capital is true?
A)It is the market value of capital.
B)It is the opportunity cost to a firm of using its own capital.
C)It includes normal profit.
D)It is the amount paid for the use of land or buildings.
E)It is the depreciated value of capital.

Accepted Answer

The implicit rental rate of capital is the opportunity cost to a firm of using its own capital. This is because if a firm uses its own capital for a project, it is forgoing the opportunity to invest that capital elsewhere and earn a return on it. The implicit rental rate is not the market value of capital (A), which is the price at which capital can be bought and sold. It also does not include normal profit (C), which is a return on entrepreneurship and is separate from the return on capital. It is not the amount paid for the use of land or buildings (D), which is rent. Finally, it is not the depreciated value of capital (E), which is just the decrease in the value of capital due to wear and tear over time.

Question 19

A firm's opportunity cost of production is the sum of the cost of using resources
A)bought in the market.
B)owned by the firm.
C)supplied by the firm's owner.
D)bought in the market and supplied by the firm's owner.
E)bought in the market,owned by the firm,and supplied by the firm's owner.

Accepted Answer

Opportunity cost includes all the resources used in production, whether bought in the market, owned by the firm, or supplied by the firm's owner. Therefore, the correct answer is the choice that includes all of these options, which is E.

Question 20

Gerald is a freelance writer who could work for a newspaper at $25,000 a year but instead runs his own business making revenue of $40,000 a year.His only business expenses are $1,000 for writing materials and $12,000 for rent.What is Gerald's economic profit from working as a freelance writer?
A)$2,000
B)$28,000
C)$15,000
D)$25,000
E)$27,000

Accepted Answer

Gerald's economic profit is calculated by subtracting both his explicit costs ($1,000 for materials and $12,000 for rent) and his implicit cost (the $25,000 salary he foregoes) from his revenue ($40,000). This results in an economic profit of $2,000.

Quiz 10: Output and Costs

A firm's opportunity cost includes

The long run is a time frame in which

Plant refers to those factors of production

Normal profit is the .Normal profit part of a firm's opportunity cost.

Economic depreciation is

Which one of the following is included in the implicit rental rate of capital?

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

Economic profit equals total revenue minus

The short run is a time frame in which

The difference in the market value of a new van owned by a firm and the market value of the same van one year later is

In general, (1) opportunity cost is greater than accounting cost. (2) opportunity cost is less than accounting cost. (3) economic profit is greater than accounting profit. (4) economic profit is less than accounting profit.

A firm's goal is to

Flora's Flowers bought a new van last year for $10,000.It can now sell the van for $8,500.To buy this year's model of the same van it would have to pay $11,000.What is the implicit rental rate using the car for one year at a zero percent interest rate?

Flora's Flowers bought a new van last year for $10,000.It can now sell the van for $8,500.To buy this year's model of the same van it would have to pay $11,000.What is the one-year amount of economic depreciation?

The implicit rental rate

The implicit rental rate to a firm of owning a building is

Which one of the following statements about the implicit rental rate of capital is true?

A firm's opportunity cost of production is the sum of the cost of using resources

Gerald is a freelance writer who could work for a newspaper at $25,000 a year but instead runs his own business making revenue of $40,000 a year.His only business expenses are $1,000 for writing materials and $12,000 for rent.What is Gerald's economic profit from working as a freelance writer?