Question 1

Which of the following best describes the difference between explicit and implicit costs in economics?

Accepted Answer

Explicit costs are direct payments for inputs, while implicit costs reflect forgone opportunities.

Question 2

A professional football player chooses not to mow his own lawn. This decision is best explained by which economic concept?

Accepted Answer

Opportunity cost

Question 3

Given the following data for Ruthie’s Gourmet Soup Company: Total Revenue = $$2000, Total Explicit Costs = 1160$$, Total Implicit Costs = $265. What is the economic profit?

Accepted Answer

$575

Question 4

Which formula correctly expresses total cost in the short run?

Accepted Answer

$$C = VC + F$$

Question 5

If a firm’s marginal cost is given by $$MC = \frac{\Delta VC}{\Delta q}$$, what does this formula imply about cost changes as output increases?

Accepted Answer

Marginal cost is determined by changes in variable cost as output changes.

Question 6

In the short run, which cost is avoidable in the long run?

Accepted Answer

Fixed cost

Question 7

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

High transaction costs

Question 8

A firm in a perfectly competitive market faces a horizontal demand curve because:

Accepted Answer

It is a price taker and cannot influence the market price.

Question 9

Which equation represents average fixed cost (AFC)?

Accepted Answer

$$AFC = \frac{F}{q}$$

Question 10

If the wage rate is $$w$$ and the marginal product of labor is $$MP_L$$, what is the formula for marginal cost in terms of labor?

Accepted Answer

$$MC = \frac{w}{MP_L}$$

Question 11

Which rule should a firm follow to maximize profit in a competitive market?

Accepted Answer

Set output where marginal revenue equals marginal cost: $$MR(q) = MC(q)$$

Question 12

Economic profit is defined as:

Accepted Answer

Total revenue minus economic cost (explicit and implicit costs)

Question 13

If $$AC is $$decreasing, what must be true about $$MC$$?

Accepted Answer

$$MC is $$less than $$AC$$

Question 14

In the long run, the total cost of a firm is given by:

Accepted Answer

$$C = VC$$

Question 15

Which of the following best describes the shutdown decision for a firm?

Accepted Answer

A firm should shut down if it cannot cover its variable costs in the short run.

Question 16

Which formula correctly expresses average cost (AC)?

Accepted Answer

$$AC = \frac{C}{q}$$

Question 17

If a firm’s marginal revenue from selling one more unit is $$MR = \frac{\Delta R}{\Delta q}$$, what does this mean?

Accepted Answer

Marginal revenue is the change in revenue from selling one more unit.

Question 18

Which of the following is a plausible real-world example of an implicit cost?

Accepted Answer

A business owner forgoing a salary to run her own company.

Question 19

If $$AVC = \frac{VC}{q}$$ and $$VC = wL$$, what is $$AVC in $$terms of wage and average product of labor ($$AP_L$$)?

Accepted Answer

$$AVC = \frac{w}{AP_L}$$

Question 20

Which of the following statements about competition is correct?

Accepted Answer

In competitive markets, no buyer or seller can significantly affect the market price.

Producers in the Short Run: Costs, Competition, and Profit Maximization

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