Question 1

A decade ago,Nino decided to open a used car lot.This car lot required her to hire some sales agents and buy some computers to track the sales of the vehicles.After a few years,Nino opened up a second location and hired more sales agents and purchased more computers.When this expansion occurred,which of the following statements is FALSE?

Accepted Answer

The answer of A decade ago,Nino decided to open a...

Question 2

Which of the following statements is true?

Accepted Answer

An inefficient firm indeed cannot achieve the maximum output possible for a given set of inputs as indicated by the production function, which reflects the maximum output achievable.

Question 3

A firm's economic profit is always less than its accounting profit because

Accepted Answer

Economic profit considers both explicit and implicit costs, whereas accounting profit only considers explicit costs. Implicit costs are the opportunity costs of using resources that the firm already owns, which are not considered in accounting profit calculations.

Question 4

What would cause a firm's production function to change?

Accepted Answer

The adoption of new technology can greatly impact a firm's production function by improving efficiency and productivity. This can include new machines, software, or processes that allow for increased output with the same input of labor and capital. The other options, such as expanding factory size or increasing the quantity of labor and capital, may impact production capacity, but they don't necessarily change the production function itself.

Question 5

What happens when a firm adopts a new technology?

Accepted Answer

When a firm adopts a new technology, it has to develop a new production function to make use of the new technology. This may involve changes to the firm's inputs, processes, and outputs. However, it does not necessarily mean that the firm will have higher profits, revenue, or costs, as the impact of the new technology on each of these factors will depend on the specific circumstances of the firm and the industry.

Question 6

The three primary factors of production are

Accepted Answer

The three primary factors of production are land, labor, and capital. Land refers to all natural resources such as water and minerals, labor refers to the human effort involved in production, and capital refers to the tools, machinery, and equipment used in production. It is the combination of these three factors that leads to the creation of goods and services.

Question 7

If we were told that a firm earns positive accounting profit and nothing else,what would we know is true about its economic profit?

Accepted Answer

Economic profit takes into account both explicit and implicit costs, while accounting profit only considers explicit costs. Therefore, we cannot determine economic profit without knowing the firm's implicit costs, making option B the correct answer.

Question 8

Another term for factors of production is

Accepted Answer

Factors of production refer to the resources used in the production process, including land, labor, capital, and entrepreneurship. These are inputs, not outputs, revenues, or profits. Costs are a result of inputs used in production, so it is not equivalent to factors of production.

Question 9

A firm's accounting profit is always greater than its economic profit because

Accepted Answer

Accounting profit only considers explicit costs, such as salaries and rent, while economic profit considers both explicit costs and implicit costs, such as the opportunity cost of the owner's time and resources. Therefore, accounting profit will always be greater than or equal to economic profit, since it does not factor in all costs incurred by the firm.

Question 10

Belinda is the owner of a department store.Last year,her total revenue was $525,000 and her total labor costs were $200,000.Her overhead expenses,including insurance and legal fees,were $175,000.The rent on the building was $45,000.Belinda could earn $105,000 per year working at a nearby department store.If her total revenue increases to $600,000 this year and all of her other expenses are held constant,we know that her economic profit is now

Accepted Answer

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

Explicit Costs: 
Labor costs = $200,000 
Overhead expenses = $175,000 
Rent = $45,000 
Total Explicit Costs = $420,000

Implicit Costs: 
Belinda's forgone salary = $105,000

Total Costs = Explicit Costs + Implicit Costs = $525,000

Total Revenue for current year = $600,000

Economic Profit = Total Revenue - Total Costs = $600,000 - $525,000 = $75,000

Therefore, the best choice is A) $75,000.

Question 11

Karolina owns a small diner,where she works full-time in the kitchen.Her total revenue last year was $100,000,and her rent was $3,000 per month.She pays her one employee $2,000 per month,and the cost of ingredients and overhead averages $500 per month.Karolina could earn $35,000 per year as the manager of a competing diner nearby.Her total economic profit last year was

Accepted Answer

Karolina's economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Her explicit costs include rent ($36,000), employee salary ($24,000), and ingredients/overhead ($6,000), totaling $66,000. Her implicit cost is the forgone salary of $35,000. Total costs are $101,000, leading to an economic profit of -$1,000.

Question 12

The production function shows the relationship between the

Accepted Answer

The production function describes the relationship between the quantity of inputs used in production and the quantity of outputs that result. It shows how much output can be produced given a certain quantity of inputs, holding all other factors constant.

Question 13

Kumar owns a small seafood restaurant,where he works full-time in the kitchen.His total revenue last year was $100,000,and his rent was $3,000 per month.He pays his one employee $2,000 per month,and the cost of ingredients and overhead averages $500 per month.Kumar could earn $35,000 per year as the manager of a competing seafood restaurant nearby.His total accounting profit last year was

Accepted Answer

Kumar's total expenses are $3,000 (rent) + $2,000 (employee) + $500 (ingredients/overhead) = $5,500 per month, or $66,000 per year. His accounting profit is $100,000 (revenue) - $66,000 (expenses) = $34,000.

Question 14

Hannah is the owner of a party store.Last year,her total revenue was $145,000,her rent was $12,000,her labor costs were $65,000,and her overhead expenses were $15,000.If she could earn $53,000 working for another party store nearby,we know that her economic profit was

Accepted Answer

To calculate economic profit, we need to subtract all explicit (out-of-pocket) costs as well as implicit (opportunity) costs from total revenue. 
Explicit Costs: 
Rent = $12,000 
Labor Costs = $65,000 
Overhead expenses = $15,000 
Total Explicit Costs = $12,000 + $65,000 + $15,000 = $92,000

Implicit Costs: 
The opportunity cost of owning the party store is the money that Hannah could have earned by working for another party store nearby, which is $53,000.

Total Costs (Explicit + Implicit) = $92,000 + $53,000 = $145,000 
Therefore, Economic Profit = Total Revenue - Total Costs 
Economic Profit = $145,000 - $145,000 = $0.00 
Therefore, the answer is D, $0.00.

Question 15

Luciana is the owner of a nail salon.Last year,her total revenue was $145,000,her rent was $12,000,her labor costs were $65,000,and her overhead expenses were $15,000.From this information,we know that her accounting profit was

Accepted Answer

To calculate accounting profit, we need to subtract all of the explicit costs (such as rent and labor costs) from total revenue. 
Accounting Profit = Total Revenue - Explicit Costs 
Accounting Profit = $145,000 - $12,000 - $65,000 - $15,000 
Accounting Profit = $53,000 
Therefore, Luciana's accounting profit was $53,000.

Question 16

A firm's inputs are also known as its

Accepted Answer

Inputs refer to the resources and factors of production used by a firm to produce its goods or services. These resources include labor, capital, land, and raw materials. Choice A (outputs) refers to the finished goods or services produced by a firm after using its inputs. Choice B (profits) refers to the amount of money a firm earns after deducting its costs from its revenues. Choice D (revenues) refers to the total amount of money a firm earns from selling its goods or services. Choice E (costs) refers to the expenses incurred by a firm in producing and selling its goods or services.

Question 17

Accounting profit ignores which of the following?

Accepted Answer

Accounting profit only considers explicit costs (direct expenses such as wages, rent, supplies, etc.) and ignores implicit costs (opportunity costs such as the value of foregone alternatives) involved in conducting business. Labor costs, capital costs, and taxes paid are all part of explicit costs and are considered in calculating accounting profit.

Question 18

Economic profit is equal to

Accepted Answer

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue. This accounts for all opportunity costs of a business, not just the out-of-pocket expenses.

Question 19

Jackie is the owner of a furniture store.Last year,her total revenue was $525,000 and her total labor costs were $200,000.Her overhead expenses,including insurance and legal fees,were $175,000.The rent on the building was $45,000.Jackie could earn $105,000 per year working at a nearby furniture distributor.From this information,we know that her accounting profit was

Accepted Answer

The answer of Jackie is the owner of a furniture...

Question 20

According to the concept of the production function,if a firm is inefficient then it must mean

Accepted Answer

The concept of production function states that the level of output depends on the amount of inputs used in the production process. An inefficient firm will not be using its inputs effectively and will be producing less output than what the production function would have calculated for the same inputs. Therefore, choice (A) is the correct answer.

Quiz 8: Business Costs and Production