Question 1

Which of the following best describes the difference between accounting profit and economic profit?

Accepted Answer

Accounting profit is total revenue minus explicit costs, while economic profit is total revenue minus both explicit and implicit costs.

Question 2

A firm has total revenues of $$2000, explicit costs of 1160$$, and implicit costs of $265. What is the firm's economic profit?

Accepted Answer

$575

Question 3

Which of the following is an example of an implicit cost for a firm?

Accepted Answer

The opportunity cost of the owner's time

Question 4

Suppose a firm’s production function is $$Q = f(L, K)$$, where $$Q is $$output, $$L is $$labour, and $$K is $$capital. If the firm increases $$L$$ while holding $$K$$ constant, which economic law describes the likely outcome for marginal product?

Accepted Answer

Law of diminishing marginal returns

Question 5

A bakery pays $$1000 per month in rent, 2000 in $$wages, and $$500 for ingredients. The owner could earn 1500 $$per month working elsewhere. What are the bakery’s explicit costs?

Accepted Answer

$3500

Question 6

If the marginal product (MP) of labour is greater than the average product (AP) of labour, what happens to the AP as more labour is added?

Accepted Answer

AP increases

Question 7

Which of the following statements about fixed and variable costs is correct?

Accepted Answer

Variable costs change with output, while fixed costs do not change as output changes.

Question 8

A firm’s marginal cost (MC) curve intersects its average total cost (ATC) curve at the minimum point of the ATC curve. Why does this occur?

Accepted Answer

Because when MC is below ATC, ATC is falling, and when MC is above ATC, ATC is rising.

Question 9

If a digital product has a large fixed cost and near-zero marginal cost, which of the following is true about its cost curves?

Accepted Answer

The marginal cost (MC) and average variable cost (AVC) curves are flat and equal, while ATC declines as output increases.

Question 10

Which of the following is NOT a form of business organization described in the chapter?

Accepted Answer

Sole corporation

Question 11

A firm’s total cost (TC) is $$300$$ when output is $$50$$ units, and $$340$$ when output is $$60$$ units. What is the marginal cost (MC) of increasing output from $$50 to$$ $$60$$ units?

Accepted Answer

$$4$$

Question 12

Which of the following best explains why the average fixed cost (AFC) curve declines as output increases?

Accepted Answer

Because fixed costs are spread over more units of output.

Question 13

If the price of a variable input (such as labour) increases, what happens to the firm’s short-run cost curves?

Accepted Answer

The average variable cost (AVC), average total cost (ATC), and marginal cost (MC) curves all shift upward.

Question 14

Which of the following is a real-world example of diminishing marginal returns?

Accepted Answer

Each additional worker in a factory eventually contributes less to total output than the previous worker.

Question 15

A firm’s total fixed cost (TFC) is $$100$$, and its total variable cost (TVC) is $$200$$ when output is $$50$$ units. What is the average total cost (ATC)?

Accepted Answer

$$6$$

Question 16

Which of the following is a plausible reason for a firm to have excess capacity?

Accepted Answer

It is producing less than the output level where average total cost is minimized.

Question 17

If a firm’s economic profit is negative, what does this imply about the allocation of resources in the economy?

Accepted Answer

Resources will tend to move out of this industry.

Question 18

Which of the following best describes the relationship between marginal product (MP) and marginal cost (MC)?

Accepted Answer

When MP is rising, MC is falling; when MP is falling, MC is rising.

Question 19

A firm’s total product (TP) increases from $$80 to$$ $$100$$ units when labour increases from $$4 to$$ $$5$$ units. What is the marginal product (MP) of the fifth unit of labour?

Accepted Answer

$$20$$

Question 20

Which of the following is NOT a method by which firms can raise financial capital?

Accepted Answer

Paying dividends to shareholders

Producers in the Short Run: Production, Costs, and Profit in Microeconomics

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