Question 1

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 the given output using the fewest possible inputs. Therefore, the best choice is B. Option A is incorrect because fully depreciating assets does not necessarily mean that the firm has achieved technological efficiency. Option C is related to economic efficiency, not technological efficiency. Option D is incorrect because only option B is the correct choice for technological efficiency.

Question 2

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

The answer of A company does not need to know...

Question 3

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 of running her own pharmacy is the income she is giving up by not working at her current job. Therefore, her opportunity cost is the difference between the income she would earn if she continued working at her job and the income she would earn running her own pharmacy, which is $81,000 ($50,000 + $6,000 + $25,000 = $81,000).

Question 4

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 with the least possible inputs, which means using resources in the most cost-effective way, and without wasting them. Therefore, the correct answer is "without using more inputs than necessary."

Question 5

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 means producing a given output by using the least amount of inputs. It is important for firms to achieve technological efficiency in order to minimize their production costs and maximize their profits. Therefore, option A is the best choice.

Question 6

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

To calculate economic profit, we need to subtract all the explicit and implicit costs from the total revenue.

Explicit costs:
Rent = $9,000
Utilities = $4,000
Suppliers = $12,000
Total explicit costs = $25,000

Implicit costs:
Opportunity cost of using savings for equipment = 3% of $10,000 = $300
Opportunity cost of not working as an employee = $30,000
Total implicit costs = $30,300

Total costs = Explicit costs + Implicit costs = $55,300

Total revenue = $55,000

Profit (or loss) = Total revenue - Total costs = $55,000 - $55,300 = -$300

Since the profit is negative, Bud incurred an economic loss of $300. Therefore, the correct answer is option C.

Question 7

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 - technology, information, and the market - can impose constraints on a firm's profits. A firm's profitability may be limited by its technological capabilities: for example, if a firm's competitors have access to more advanced technology, it may struggle to keep up. Information can also be a constraint if a firm lacks access to key data or knowledge, which can affect its ability to make informed decisions. Finally, the market in which a firm operates can impose constraints on its profits, as factors such as competition, regulatory environment, and consumer demand can all impact a firm's ability to generate revenue.

Question 8

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 9

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 refers to the maximum output that can be produced using a given amount of inputs. It does not take into consideration the cost of the resources used or the economic efficiency of the production process. Therefore, option A is the only correct statement.

Question 10

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

Opportunity cost is the value of the next best alternative that must be given up in order to pursue a certain action. In this case, Sweet's opportunity cost is the income he could have earned working at Wal-Mart instead of running his candy store. Therefore, his total opportunity cost is $115,000 ($30,000 + $40,000 + $10,000 + $20,000 + $15,000 - $135,000). His best choice would be to continue running the candy store, as it generated a revenue of $135,000, which is higher than the $15,000 he could earn at Wal-Mart.

Question 11

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

The method of production is a technology constraint, which limits the maximum profit that a firm can make. The firm cannot go beyond what is capable with their current technology and production methods. Hence, option C is the correct choice.

Question 12

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 takes into account both explicit and implicit costs, including the opportunity cost of resources used to produce goods or services. It is not the same as the company's normal profit, which only considers explicit costs. Therefore, options A, B, and C are incorrect.

Question 13

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

The answer of A firm uses labor and capital. To...

Question 14

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

The answer of Bud opened a flower shop. He rented...

Question 15

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 refers to producing a good or service using the least amount of resources possible, while economic efficiency refers to producing a good or service at the lowest possible cost. Therefore, technological efficiency is only dependent on production methods while economic efficiency takes into consideration the costs of resources used as well. Option A is incorrect because economic efficiency can still occur even if a firm can increase production without using more resources, as long as the cost of producing each additional unit does not increase. Option B is incorrect as it confuses technological efficiency with economic efficiency. Option D is incorrect as only option C is correct.

Question 16

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's efficiency is related to her production technology. She cannot produce more umbrellas without either investing in more machines or hiring more workers, indicating that she has fully utilized her current technology. Therefore, Emma's efficiency is technologically efficient.

Question 17

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

The answer of Firm A can produce a unit of...

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 economic profit?
A) $20,000
B) -$20,000
C) zero
D) $35,000

Accepted Answer

The answer of Mr. Sweet opened a candy store. He...

Question 19

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 incurred by Greg is the highest valued alternative forgone.

Starting his own business means he gives up his job with his uncle, which is currently earning him $40,000 per year. Therefore, the annual opportunity cost of running his own business is $40,000.

Additionally, he is using $10,000 of savings that he could have invested at the current interest rate of 5 percent. Therefore, the opportunity cost of using that money for his business is $500 per year (5% of $10,000).

Furthermore, the equipment that he is purchasing could be sold for $10,000, so the opportunity cost of using that equipment is also $10,000.

The total opportunity cost is the sum of all these costs: 
$40,000 + $500 + $10,000 = $40,500

Question 20

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 external conditions that affect a firm's ability to buy inputs and sell outputs. A firm must comply with market regulations, deal with competitors, and interact with customers in order to succeed in the market. Constraints related to converting inputs into outputs or producing the inputs to production are internal and operational in nature, rather than market-related. Issuing stock is also not necessarily a constraint; it is a decision that a firm may make as part of its financing strategy, but it does not directly affect the firm's ability to buy and sell in the market.

Quiz 10: Organizing Production

A firm has achieved technological efficiency whenever it has

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

Technological efficiency necessarily means producing

Technological efficiency occurs when the firm produces a given output

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

Which of the following is true?

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

An economic profit is

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

Which of the following is a correct statement?

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