Question 1

A firm uses labor and capital. To tell if the firm is technologically efficient, you
A) do not need to know the cost of labor or the cost of capital.
B) need to know the cost of capital but not the cost of labor.
C) need to know the cost of labor and the cost of capital.
D) need to know the cost of labor but not the cost of capital.

Accepted Answer

Technological efficiency is about producing the maximum output with given inputs, regardless of their costs. Therefore, knowing the costs of labor or capital is not necessary to determine technological efficiency.

Question 2

Emma owns a firm that produces umbrellas. Currently, Emma produces 2,500 umbrellas a day. Emma cannot produce more umbrellas in a day unless she purchases another machine or else hires more workers. Emma is ________ efficient.
A) cost
B) technologically
C) economically
D) capital and labor

Accepted Answer

Emma is technologically efficient because she is producing the maximum number of umbrellas possible with her current resources and technology.

Question 3

Which of the following is TRUE?
A) Technological efficiency occurs if the maximum feasible amount of output is achieved from a given quantity of inputs.
B) Technological efficiency depends on the relative cost of the resources used in production.
C) If production is technologically efficient, then it must be economically efficient.
D) All of the above answers are correct.

Accepted Answer

Technological efficiency is about maximizing output from given inputs, without considering costs, which is what economic efficiency involves.

Question 4

Sheila's Sports Shop is a very popular sporting goods store, which has a yearly revenue of $600,000. Sheila runs the business herself. Her alternative employment options are to be a college swimming coach for $50,000 per year or a construction worker for $40,000 per year. Sheila spends $230,000 purchasing goods for resale to her customers. She also has four employees, who each earn $25,000 per year. Sheila owns the building that her Sports Shop is housed in and she could have rented it out for $20,000 per year. Sheila's economic profit is equal to
A) $160,000 per year.
B) $200,000 per year.
C) $250,000 per year.
D) $270,000 per year.

Accepted Answer

The answer of Sheila's Sports Shop is a very popular...

Question 5

Bud opened a flower shop. He rented a building for $9,000 a year. To buy equipment for the store, he withdrew $10,000 from his savings account, which earned an annual interest rate of 3 percent. During the first year of operation, Bud paid $4,000 for utilities and $12,000 to his suppliers. The store's total annual revenue was $55,000. The market value of the store's equipment at the end of the year was $8,000. If Bud had not started this business, he would have continued to work as an employee at another flower shop for $30,000 a year. What was Bud's opportunity cost of running his business?
A) $57,300
B) $67,000
C) $67,300
D) $27,000

Accepted Answer

Bud's opportunity cost is the amount of money he could have earned if he had not started his own business. In this case, Bud could have earned $30,000 a year working as an employee at another flower shop. Therefore, his opportunity cost is $30,000.

Question 6

Firm A can produce a unit of output with 10 hours of labor and 5 units of material. Firm B can produce a unit of output with 5 hours of labor and 10 units of material. Firm C can produce a unit of output with 10 hours of labor and 10 units of material. If the prices of labor and material are $10 per hour and $5 per unit, respectively, which of these firms is the most technologically efficient?
A) firm A only
B) firm B only
C) firm C only
D) Firms A and B could both be technologically efficient.

Accepted Answer

Technological efficiency refers to using the least amount of inputs to produce a given level of output. Firm A uses 10 hours of labor and 5 units of material, costing $125. Firm B uses 5 hours of labor and 10 units of material, costing $100. Firm C uses 10 hours of labor and 10 units of material, costing $150. Firm B is the most cost-efficient, but both Firms A and B could be considered technologically efficient depending on the context of input usage.

Question 7

Bud opened a flower shop. He rented a building for $9,000 a year. To buy equipment for the store, he withdrew $10,000 from his savings account, which earned an annual interest rate of 3 percent. During the first year of operation, Bud paid $4,000 for utilities and $12,000 to his suppliers. The store's total annual revenue was $55,000. The market value of the store's equipment at the end of the year was $8,000. If Bud had not started this business, he would have continued to work as an employee at another flower shop for $30,000 a year. During the first year of operation, Bud
A) received an economic profit of $30,000.
B) received an economic profit of $20,000.
C) incurred an economic loss of $2,300
D) incurred an economic loss of $12,300

Accepted Answer

Economic profit = Total revenue - (Explicit costs + Implicit costs)Explicit costs = Rent + Utilities + Cost of goods sold = $9,000 + $4,000 + $12,000 = $25,000Implicit costs = Interest on savings + Bud's salary = $10,000 * 0.03 + $30,000 = $43,000Economic profit = $55,000 - ($25,000 + $43,000) = -$12,300

Question 8

A firm has achieved technological efficiency whenever it has
A) fully depreciated all its assets.
B) produced the given output using the fewest inputs.
C) produced the given output at the lowest cost.
D) all of the above.

Accepted Answer

Technological efficiency refers to the ability of a firm to produce a given output using the fewest inputs.

Question 9

Technological efficiency occurs when the firm produces a given output
A) by using the least amount of inputs.
B) by using the maximum amount of inputs.
C) at the least cost.
D) at the greatest cost.

Accepted Answer

Technological efficiency is achieved when a firm produces a given output using the least amount of inputs, maximizing productivity and minimizing waste.

Question 10

Greg, a landscaper, is planning on opening his own landscaping company. He currently earns $40,000 per year working for his uncle but he will need to quit that job. He plans to use $10,000 in savings to pay for the equipment he needs, though even after use he could sell the equipment for what he paid, $10,000. The current interest rate on savings is 5 percent. What is the total opportunity cost incurred by Greg in running his own business?
A) $10,000
B) $40,500
C) $40,000
D) $50,000

Accepted Answer

The opportunity cost includes the $40,000 salary he foregoes and the $500 interest he would have earned on his $10,000 savings (5% of $10,000), totaling $40,500.

Question 11

Tara, a pharmacist, is planning on opening her own pharmacy. Tara currently earns $50,000 a year at her job. She has calculated that it will cost her $6,000 in rent and utilities and $25,000 for an assistant per year to run her pharmacy. What is the amount of opportunity cost that Tara incurs in running her own pharmacy?
A) $31,000
B) $25,000
C) $50,000
D) $81,000

Accepted Answer

The opportunity cost includes Tara's current salary of $50,000, which she foregoes, plus the $31,000 in expenses ($6,000 for rent and utilities and $25,000 for an assistant), totaling $81,000.

Question 12

Any method of producing a good or service is ________. It ________ the maximum profit that a firm can make.
A) an information constraint; always increases
B) a technology; always increases
C) a technology; limits
D) an information constraint; limits

Accepted Answer

A method of producing a good or service is referred to as a technology, and it limits the maximum profit a firm can make because it determines the efficiency and cost-effectiveness of production.

Question 13

An economic profit is
A) an opportunity cost of the company.
B) a cost that is always measured by the accountant.
C) the amount of profit an accountant calculates for a company.
D) not the same as the company's normal profit.

Accepted Answer

Economic profit is the difference between total revenue and total costs, including both explicit and implicit costs, and it differs from normal profit, which is the minimum profit necessary to keep a company in operation.

Question 14

Mr. Sweet opened a candy store. He rented a building for $30,000 a year. During the first year of operation, Sweet paid $40,000 to his employees, $10,000 for utilities, and $20,000 for goods he bought from other firms. His total revenue was $135,000. Sweet's best alternative to running this candy store is to work for Wal-Mart as a sales associate for $15,000 a year. What is Sweet's economic profit?
A) $20,000
B) -$20,000
C) zero
D) $35,000

Accepted Answer

Economic profit = Total revenue - (Total cost + Opportunity cost)= 135,000 - (30,000 + 40,000 + 10,000 + 20,000 + 15,000)= 135,000 - 115,000= $20,000

Question 15

A firm's market constraints include the conditions under which it can
A) convert inputs into outputs.
B) buy its inputs and sell its outputs.
C) issue stock.
D) produce the inputs to production.

Accepted Answer

Market constraints refer to the conditions related to purchasing inputs and selling outputs, which directly affect a firm's operations in the market.

Question 16

Technological efficiency necessarily means producing
A) at minimum cost.
B) with the highest level technology available.
C) without using more inputs than necessary.
D) technology itself.

Accepted Answer

Technological efficiency refers to producing output without wasting inputs, meaning no more inputs are used than necessary to achieve a given level of output.

Question 17

Which of the following is a CORRECT statement?
A) Economic efficiency definitely occurs when a firm cannot increase production without using more resources.
B) Technological efficiency depends on the costs of resources while economic efficiency depends on only production methods.
C) Technological efficiency depends only on production methods, while economic efficiency depends on the costs of resources.
D) all of the above

Accepted Answer

Technological efficiency is about using the least amount of resources to produce a given output, while economic efficiency considers both the production methods and the costs of resources to achieve the lowest cost of production.

Question 18

Mr. Sweet opened a candy store. He rented a building for $30,000 a year. During the first year of operation, Sweet paid $40,000 to his employees, $10,000 for utilities, and $20,000 for goods he bought from other firms. His total revenue was $135,000. Sweet's best alternative to running this candy store is to work for Wal-Mart as a sales associate for $15,000 a year. What is Sweet's total opportunity cost?
A) $15,000
B) $100,000
C) $135,000
D) $115,000

Accepted Answer

Sweet's total opportunity cost includes the explicit costs ($30,000 rent + $40,000 wages + $10,000 utilities + $20,000 goods) and the implicit cost of not working at Wal-Mart ($15,000). This totals to $115,000.

Question 19

Which of the following constrain (that is, limit) a firm's profits? I. its technology
II) its information
III) the market in which it operates
A) I only
B) I and II
C) II and III
D) I, II and III

Accepted Answer

All three factors can constrain a firm's profits: technology limits production capabilities, information affects decision-making and efficiency, and the market influences pricing and demand.

Question 20

A company does NOT need to know the price of each resource it employs if it wants to determine whether or not it is achieving
A) technological efficiency.
B) economic efficiency.
C) accounting efficiency.
D) managerial efficiency.

Accepted Answer

Technological efficiency is achieved when a company is producing the maximum possible output with the given inputs, regardless of the cost of those inputs.

Quiz 10: Organizing Production

A firm uses labor and capital. To tell if the firm is technologically efficient, you

Emma owns a firm that produces umbrellas. Currently, Emma produces 2,500 umbrellas a day. Emma cannot produce more umbrellas in a day unless she purchases another machine or else hires more workers. Emma is ________ efficient.

Which of the following is TRUE?

A firm has achieved technological efficiency whenever it has

Technological efficiency occurs when the firm produces a given output

Any method of producing a good or service is . It the maximum profit that a firm can make.

An economic profit is

A firm's market constraints include the conditions under which it can

Technological efficiency necessarily means producing

Which of the following is a CORRECT statement?

Which of the following constrain (that is, limit) a firm's profits? I. its technology II) its information III) the market in which it operates

A company does NOT need to know the price of each resource it employs if it wants to determine whether or not it is achieving