Microeconomic Principles A Contemporary Introduction International Edition 8th Edition by William A. McEachern – Test Bank

Microeconomic Principles A Contemporary Introduction International Edition 8th Edition by William A. McEachern – Test Bank

Chapter 7—Production and Cost in the Firm

MULTIPLE CHOICE

1. The reason economists assume that firms try to maximize economic profit is
a. over time, firms that don’t earn profits will have difficulty securing financing to survive
b. firms in the real world always maximize profit
c. profit is easier to calculate than revenues
d. if a firm fails to earn a profit in its first year, it will go out of business
e. profit maximization is easier for firms than revenue maximization

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Costs of production TOP: Cost and Profit

2. Implicit cost involves a direct cash payment for the use of a resource.
a. True
b. False

ANS: B PTS: 1 DIF: Easy NAT: Analytic
LOC: Costs of production TOP: Explicit and Implicit Costs

3. All other things constant, higher implicit cost results in lower accounting profit.
a. True
b. False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Costs of production TOP: Explicit and Implicit Costs

4. Which of the following is not an explicit cost?
a. salaries
b. sales taxes
c. the cost of utilities, such as gas and electricity
d. insurance premiums
e. the value of a firm owner’s time

ANS: E PTS: 1 DIF: Easy NAT: Analytic
LOC: Costs of production TOP: Explicit and Implicit Costs

5. If Ripco owns the building where it operates, then if
a. the firm pays no rent, there is no opportunity cost
b. the firm does not rent the building to anyone else, there is no opportunity cost
c. the firm pays no rent, there is an opportunity cost
d. its usage of the building precludes it from renting to anyone else, there is an opportunity cost
e. the firm could use the building for other things, there is no opportunity cost

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Costs of production TOP: Explicit and Implicit Costs

6. Which of the following are implicit costs for a typical firm?
a. insurance costs
b. electricity costs
c. opportunity costs of capital owned and used by the firm
d. cost of labor hired by the firm
e. the cost of raw materials

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Costs of production TOP: Explicit and Implicit Costs

7. Cash payments for steel to be used in production would be an example of
a. sunk costs
b. fixed costs
c. explicit costs
d. implicit costs
e. entrepreneurial costs

ANS: C PTS: 1 DIF: Easy NAT: Reflective Thinking
LOC: Costs of production TOP: Explicit and Implicit Costs

8. A firm’s opportunity costs of using resources provided by the firm’s owners are called
a. sunk costs
b. fixed costs
c. explicit costs
d. implicit costs
e. entrepreneurial costs

ANS: D PTS: 1 DIF: Easy NAT: Analytic
LOC: Costs of production TOP: Explicit and Implicit Costs

9. Unlike implicit costs, explicit costs
a. reflect opportunity costs
b. include the value of the owner’s time
c. are not included in a firm’s accounting statements
d. are actual cash payments
e. do not change as a firm’s output changes

ANS: D PTS: 1 DIF: Moderate NAT: Analytic
LOC: Costs of production TOP: Explicit and Implicit Costs

10. An implicit cost is
a. any cost a firm cannot avoid in the short run
b. any expenditure a firm makes
c. an opportunity cost
d. accurately measured in accounting statements
e. ignored by economists

ANS: C PTS: 1 DIF: Easy NAT: Analytic
LOC: Costs of production TOP: Explicit and Implicit Costs