Question 1

Which of the following statements is correct?
A)Opportunity costs equal explicit minus implicit costs.
B)Economists consider opportunity costs to be included in a firm's total revenues.
C)Economists consider opportunity costs to be included in a firm's costs of production.
D)All of the above are correct.

Accepted Answer

Opportunity costs refer to the value of the next best alternative that must be foregone in order to take a particular action. This cost is not reflected in any explicit or accounting costs but is considered to be a part of a firm's cost of production as it represents the forgone benefit from the next best alternative. Hence, economists consider opportunity costs to be included in a firm's costs of production.

Question 2

The things that must be forgone to acquire a good are called
A)implicit costs.
B)opportunity costs.
C)explicit costs.
D)accounting costs.

Accepted Answer

Opportunity cost refers to the cost of the next best alternative foregone in order to obtain something. It is the value of the forgone alternative that must be considered when making a choice. Implicit costs refer to non-monetary opportunity costs, while explicit costs refer to monetary opportunity costs. Accounting costs refer to the actual outlay or expense incurred in acquiring a good or service.

Question 3

Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be
A)-$3,875.
B)$26,125.
C)$28,500.
D)$30,000.

Accepted Answer

Total cost of production = 300 x $100 = $30,000
Total revenue from sales = 275 x $95 = $26,125
Total profit = Total revenue - Total cost = $26,125 - $30,000 = -$3,875. Since the total revenue is less than the total cost, the company incurs a loss of $3,875. Therefore, option A is the correct answer.

Question 4

An example of an opportunity cost that is also an implicit cost is
A)a lease payment.
B)the cost of raw materials.
C)the value of the business owner's time.
D)All of the above are correct.

Accepted Answer

Opportunity cost refers to the value of the best alternative forgone when a decision is made. Implicit costs, on the other hand, are non-monetary costs associated with using resources owned by the firm itself. The value of the business owner's time is an example of an implicit cost as it is not a direct financial expense but represents the value of the owner's time that could have been used in an alternative way. A and B are examples of explicit costs as they represent direct financial expenses.

Question 5

Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business?
A)$60
B)$280
C)$340
D)$660

Accepted Answer

The opportunity cost of financial capital is the return on investment that Gwen could have earned if she had not invested the funds in her photography studio.

The interest earned on the $2,000 that Gwen withdrew from her savings account is:
$2,000 x 0.03 = $60

The interest expense on the $4,000 loan from the bank is:
$4,000 x 0.07 = $280

Therefore, Gwen's total annual opportunity cost is:
$60 + $280 = $340.

Therefore, the correct answer is C.

Question 6

Total cost is the
A)amount a firm receives for the sale of its output.
B)fixed cost less variable cost.
C)market value of the inputs a firm uses in production.
D)quantity of output minus the quantity of inputs used to make a good.

Accepted Answer

Total cost refers to the market value of all inputs a firm uses in production. This includes both fixed costs (costs that do not change with the level of output, such as rent) and variable costs (costs that change with the level of output, such as materials).

Question 7

Explicit costs
A)require an outlay of money by the firm.
B)include all of the firm's opportunity costs.
C)include the value of the business owner's time.
D)Both b and c are correct.

Accepted Answer

Explicit costs are the out-of-pocket expenses that a firm incurs in order to produce goods or services. These costs require an actual outlay of money by the firm, such as wages paid to employees, rent for a leased building, or the cost of materials and supplies. Opportunity costs (choice B) include the forgone value of the best alternative use of the resources, while the value of a business owner's time (choice C) is an implicit cost, not an explicit cost.

Question 8

An example of an explicit cost of production would be the
A)cost of forgone labor earnings for an entrepreneur.
B)lost opportunity to invest in capital markets when the money is invested in one's business.
C)lease payments for the land on which a firm's factory stands.
D)Both a and c are correct.

Accepted Answer

The lease payments for the land on which a firm's factory stands is a direct and explicit monetary cost associated with producing goods or services. The cost of forgone labor earnings for an entrepreneur and lost opportunity to invest in capital markets when money is invested in one's business are both examples of implicit costs, as they represent forgone opportunities or alternative uses of resources that do not involve a direct monetary payment.

Question 9

Profit is defined as total revenue
A)plus total cost.
B)times total cost.
C)minus total cost.
D)divided by total cost.

Accepted Answer

Profit is the difference between total revenue and total cost, so it is calculated by subtracting total cost from total revenue. Therefore, the correct choice is C, which is "minus total cost."

Question 10

Ryan sells 200 plastic ball point pens at $0.50 each. His total costs are $25. His profits are
A)$25.
B)$75.
C)$100.
D)$175.

Accepted Answer

Ryan's total revenue from selling 200 pens at $0.50 each is:

Total revenue = 200 x $0.50 = $100

His total costs are $25, so his profits are:

Profits = Total revenue - Total costs
Profits = $100 - $25
Profits = $75

Therefore, Ryan's profits are $75, which corresponds to choice (B).

Question 11

A firm's opportunity costs of production are equal to its
A)explicit costs only.
B)implicit costs only.
C)explicit costs + implicit costs.
D)explicit costs + implicit costs + total revenue.

Accepted Answer

Opportunity costs refer to the value of the next-best alternative foregone in order to produce a good or service. This includes both explicit costs (such as wages, rent, and materials) and implicit costs (such as foregone income or the opportunity cost of the owner's time and resources). Therefore, the firm's opportunity costs of production are equal to its explicit costs plus its implicit costs. Total revenue (while important for the firm's profitability) is not directly related to opportunity costs.

Question 12

Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's
A)total revenue.
B)opportunity costs.
C)explicit costs.
D)marginal costs.

Accepted Answer

The $40,000 income that Jamar gave up is his opportunity cost, which is the earnings he sacrificed in his previous job to pursue his new venture. Opportunity cost is a type of explicit cost, but it specifically refers to the forgone earnings or benefits that result from choosing one option over another. Therefore, the correct answer is B, opportunity costs.

Question 13

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?
A)$30
B)$140
C)$170
D)$300

Accepted Answer

The opportunity cost is the income that Kelly would have earned if he had not withdrawn the $1,000 from his savings account and instead left it to earn interest.

The interest earned on the $1,000 is 3% = 0.03 * $1,000 = $30

The interest paid on the $2,000 loan is 7% = 0.07 * $2,000 = $140

So the total annual opportunity cost is $30 + $140 = $170, which is answer choice C.

Question 14

The value of a business owner's time is an example of
A)an opportunity cost.
B)a fixed cost.
C)an explicit cost.
D)total revenue.

Accepted Answer

The value of a business owner's time represents the potential benefits that the owner could have gained by using that time in an alternative way (such as pursuing other business ventures or spending time with family). This is a classic example of an opportunity cost, which is the cost of giving up the next best alternative when making a decision. The other options (B, C, D) do not accurately describe the concept of the value of a business owner's time.

Question 15

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are
A)$25.
B)$124.50.
C)$125.
D)$150.

Accepted Answer

The answer of Marcus sells 300 candy bars at $0.50...

Question 16

Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Bubba's annual opportunity cost of the financial capital that he invested in his business?
A)$20
B)$40
C)$200
D)$400

Accepted Answer

The answer of Bubba is a shrimp fisherman who used...

Question 17

The market value of the inputs a firm uses is called
A)total cost.
B)variable cost.
C)marginal cost.
D)fixed cost.

Accepted Answer

The answer of The market value of the inputs a...

Question 18

Anya has decided to start her own hair-styling salon. To purchase the necessary equipment, Anya withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Anya's annual opportunity cost of the financial capital that has been invested in the business?
A)$300
B)$400
C)$700
D)$1,650

Accepted Answer

The answer of Anya has decided to start her own...

Question 19

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's
A)total revenue.
B)explicit costs.
C)implicit costs.
D)marginal costs.

Accepted Answer

The $5,000 that Bubba gave up by not being a fishing tour guide is considered an opportunity cost, which is an implicit cost. Implicit costs are non-monetary costs that are usually associated with the owner's time, effort, and resources that could have been used elsewhere. Hence, the $5,000 opportunity cost is considered an implicit cost and is factored into the calculation of economic profit.

Question 20

Profit is defined as
A)net revenue minus depreciation.
B)total revenue minus total cost.
C)average revenue minus average total cost.
D)marginal revenue minus marginal cost.

Accepted Answer

Profit is calculated as the difference between the total revenue and total cost incurred by a business. Therefore, option B is the correct choice. Option A is incorrect as depreciation is not considered while calculating profit. Option C is incorrect as it calculates the difference between the average revenue and average total cost, which may not give an accurate picture of the overall profit. Option D is incorrect as it calculates the difference between marginal revenue and marginal cost, which may not reflect the overall profitability of the business.

Quiz 13: The Costs of Production

Which of the following statements is correct?

The things that must be forgone to acquire a good are called

Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be

An example of an opportunity cost that is also an implicit cost is

Total cost is the

Explicit costs

An example of an explicit cost of production would be the

Profit is defined as total revenue

Ryan sells 200 plastic ball point pens at $0.50 each. His total costs are $25. His profits are

A firm's opportunity costs of production are equal to its

Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's

The value of a business owner's time is an example of

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are

Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Bubba's annual opportunity cost of the financial capital that he invested in his business?

The market value of the inputs a firm uses is called

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's

Profit is defined as