Question 1

The difference between accounting profit and economic profit is
A)total costs.
B)implicit costs.
C)total opportunity costs.
D)normal profits.
E)marginal cost.

Accepted Answer

Accounting profit only takes into account explicit costs (such as wages, rent, and materials), whereas economic profit takes into account both explicit and implicit costs (such as the opportunity cost of using resources for one purpose instead of another). Therefore, the difference between the two is the inclusion of implicit costs in economic profit.

Question 2

Suppose a dentist has total revenue of $320,000,and his total costs are $250,000 for the year.Also suppose the dentist left a job paying $112,000 a year to start his own practice.What is the dentist's economic profit?
A)$182,000
B)-$42,000
C)-$28,000
D)$112,000
E)$70,000

Accepted Answer

Economic profit is calculated by subtracting all costs (including opportunity costs) from total revenue. In this case, the opportunity cost is the $112,000 salary the dentist gave up to start his own practice. 
Economic profit = total revenue - total costs - opportunity cost
Economic profit = $320,000 - $250,000 - $112,000
Economic profit = $42,000
Therefore, the best choice is B.

Question 3

When economic profit is equal to zero,we say that
A)implicit costs equal zero.
B)a normal profit is being earned.
C)total cost is greater than total revenue.
D)accounting profit is negative.
E)the business is not profitable.

Accepted Answer

When economic profit is equal to zero, it means that the revenue generated is just enough to cover both explicit and implicit costs, including the opportunity cost of the resources used. This is known as earning a normal profit, which is the minimum level of profit required for a business to continue operating in the long run. Therefore, option B is the correct answer. The other options are incorrect as they do not accurately reflect the concept of economic profit.

Question 4

Exhibit 9-2 -Refer to Exhibit 9-2.If the market demand curve is D₁,then the firm earns normal profit.

Accepted Answer

The answer of Exhibit 9-2 
-Refer to Exhibit 9-2.If the...

Question 5

Exhibit 9-2 -Refer to Exhibit 9-2.If the demand curve shifts from D₁ to D₂,then A)some firms enter the industry. B)some firms exit the industry. C)the number of firms does not change. D)firms earn a normal profit. E)most firms earn a loss.

Accepted Answer

The answer of Exhibit 9-2 
-Refer to Exhibit 9-2.If the...

Question 6

Exhibit 9-1 -Refer to Exhibit 9-1.If the market demand curve is D₁,what happens in the long run? A)Firm entry occurs. B)Firm exit occurs. C)Some firms increase capital input. D)Some firms increase labor input. E)Most firms do nothing.

Accepted Answer

The answer of Exhibit 9-1 
-Refer to Exhibit 9-1.If the...

Question 7

Exhibit 9-1 -Refer to Exhibit 9-1.When does firm entry occur? A)When demand is at D₃ B)When demand is at D₁ C)When demand is at D₂ D)When price is P₁ or greater E)When price is P₂ or less

Accepted Answer

The answer of Exhibit 9-1 
-Refer to Exhibit 9-1.When does...

Question 8

Suppose that a competitive market is initially in long-run equilibrium.Which of the following are the most likely results of an increase in market demand?
A)Existing firms will produce less and some firms will exit the market so that the market supply curve will shift to the left.
B)Some existing firms will produce more while some other firms will exit the market so that the market supply curve will remain the same.
C)Existing firms will produce more and new firms will enter the market so that the market supply curve will shift to the right.
D)Existing firms will produce less while new firms will enter the market so that the effect on the market supply curve is uncertain.
E)Nothing will change in the market.

Accepted Answer

An increase in market demand will cause firms to produce more in order to meet the heightened demand. This could lead to profits for existing firms, and may attract new firms to enter the market in the long-run, which will shift the market supply curve to the right. Therefore, the most likely result is that existing firms will produce more and new firms will enter the market, shifting the market supply curve to the right.

Question 9

In the long run,market supply increases as market demand increases.

Accepted Answer

As demand for a product or service increases, producers have an incentive to supply more because they can sell it at higher prices. Therefore, in the long run, market supply increases along with market demand.

Question 10

Exhibit 9-1 -Refer to Exhibit 9-1.Which demand curve results in normal profits? A)D₁ B)D₂ C)D₃ D)Both D₁ and D₂ E)Both D₂ and D₃

Accepted Answer

The answer of Exhibit 9-1 
-Refer to Exhibit 9-1.Which demand...

Question 11

Suppose a mechanic uses $150,000 of his own money to start a business.The rate of interest he could earn in a savings account is 5 percent,and the rate of interest he could earn by investing in bonds is 8 percent.What is the opportunity cost of capital when the mechanic uses his money to start his own business?
A)$8,000/year
B)$7,500/year
C)$150,000
D)$12,000/year
E)$19,500/year

Accepted Answer

The opportunity cost of capital is the rate of return the mechanic could have earned if he had invested his money in the next best alternative, which in this case is bonds with an 8% interest rate. Therefore, the opportunity cost of capital is 8% of $150,000, which is $12,000 per year. Therefore, the correct option is (D).

Question 12

Suppose a dentist has total revenue of $320,000,and his total costs are $250,000 for the year.Also suppose the dentist left a job paying $112,000 a year to start his own practice.What is the dentist's accounting profit?
A)-$28,000
B)-$42,000
C)$182,000
D)$70,000
E)$112,000

Accepted Answer

The dentist's accounting profit is calculated by subtracting total costs from total revenue, which is $320,000 - $250,000 = $70,000.

Question 13

An increase in market demand can be shown by shifting a firm's demand curve to the right.

Accepted Answer

The answer of An increase in market demand can be...

Question 14

Exhibit 9-1 
-Refer to Exhibit 9-1.If all firms are identical,the equilibrium number of firms in the industry is
A)125,000.
B)3,333.
C)2,500.
D)3,000.
E)250,000.

Accepted Answer

The answer of Exhibit 9-1 
-Refer to Exhibit 9-1.If all...

Question 15

Exhibit 9-1 -Refer to Exhibit 9-1.Which of the following describes a long-run competitive equilibrium? A)When market demand is at D₂,each firm produces more than 75 units. B)When market demand is at D₂,each firm produces 75 units. C)When market demand is at D₂,each firm produces fewer than 75 units. D)When market demand is at D₂,each firm produces 250,000 units. E)When price is P₂,each firm produces 250,000 units.

Accepted Answer

In long-run competitive equilibrium, each firm produces at the minimum point on its long-run average cost curve, where price equals marginal cost. In this exhibit, the minimum point on the long-run average cost curve is at the vertical MC curve intersecting the demand curve at point P = D₂. Each firm produces 75 units at this price.

Question 16

When market demand increases in a competitive industry,
A)the number of firms increases,causing short-run market supply to increase.
B)firms become less efficient.
C)firms' marginal cost curves shift to the right.
D)economic profits stay at zero because of competition.
E)market price increases,making it possible for ATC curves to shift up.

Accepted Answer

The answer of When market demand increases in a competitive...

Question 17

If market demand increases,a competitive firm sees
A)its cost curves shift up.
B)its profit-maximizing output level increase.
C)its marginal cost fall.
D)its profits decrease.
E)the demand curve facing the firm shift down.

Accepted Answer

When market demand increases, the equilibrium price in the market will increase. This will lead to an increase in the price received by the competitive firm for each unit of output sold. As a result, the marginal revenue (MR) curve of the firm will shift up. Since a competitive firm aims to maximize profit by producing at the output level where MR equals marginal cost (MC), the firm will increase its profit-maximizing output level in response to the increase in market demand. Therefore, the correct answer is B.

Question 18

Exhibit 9-1 -Refer to Exhibit 9-1.If the market demand curve is D₃,what happens over time? A)Some existing firms increase capital input. B)Firm exit occurs. C)Some existing firms decrease labor input. D)Market price decreases. E)Most firms do nothing.

Accepted Answer

The answer of Exhibit 9-1 
-Refer to Exhibit 9-1.If the...

Question 19

A normal profit may be defined as
A)the minimum amount of profit required to keep a business operating in the long run.
B)an accounting profit equal to the sum of all opportunity costs.
C)the maximum amount of profit that a business has ever made.
D)economic profit that is equal to accounting profit.
E)accounting profit equal to zero.

Accepted Answer

A normal profit is the minimum amount of profit required to keep a business operating in the long run. It is also known as zero economic profit, where the total revenues equal the total costs, including both explicit and implicit costs. In other words, normal profit is the level of profit necessary for a business to continue operating in the long run, covering all explicit and implicit costs, but not earning any extra economic profit.

Question 20

Exhibit 9-1 -Refer to Exhibit 9-1.Which demand curve results in economic losses? A)D₁ B)D₂ C)D₃ D)Both D₁ and D₂ E)Both D₂ and D₃

Accepted Answer

The answer of Exhibit 9-1 
-Refer to Exhibit 9-1.Which demand...

Quiz 9: The Rise and Fall of Industries

The difference between accounting profit and economic profit is

Suppose a dentist has total revenue of $320,000,and his total costs are $250,000 for the year.Also suppose the dentist left a job paying $112,000 a year to start his own practice.What is the dentist's economic profit?

When economic profit is equal to zero,we say that

Exhibit 9-2 -Refer to Exhibit 9-2.If the market demand curve is D1,then the firm earns normal profit.

Exhibit 9-2 -Refer to Exhibit 9-2.If the demand curve shifts from D1 to D2,then

Exhibit 9-1 -Refer to Exhibit 9-1.If the market demand curve is D1,what happens in the long run?

Exhibit 9-1 -Refer to Exhibit 9-1.When does firm entry occur?

Suppose that a competitive market is initially in long-run equilibrium.Which of the following are the most likely results of an increase in market demand?

In the long run,market supply increases as market demand increases.

Exhibit 9-1 -Refer to Exhibit 9-1.Which demand curve results in normal profits?

Suppose a dentist has total revenue of $320,000,and his total costs are $250,000 for the year.Also suppose the dentist left a job paying $112,000 a year to start his own practice.What is the dentist's accounting profit?

An increase in market demand can be shown by shifting a firm's demand curve to the right.

Exhibit 9-1 -Refer to Exhibit 9-1.If all firms are identical,the equilibrium number of firms in the industry is

Exhibit 9-1 -Refer to Exhibit 9-1.Which of the following describes a long-run competitive equilibrium?

When market demand increases in a competitive industry,

If market demand increases,a competitive firm sees

Exhibit 9-1 -Refer to Exhibit 9-1.If the market demand curve is D3,what happens over time?

A normal profit may be defined as

Exhibit 9-1 -Refer to Exhibit 9-1.Which demand curve results in economic losses?

Exhibit 9-2 -Refer to Exhibit 9-2.If the market demand curve is D₁,then the firm earns normal profit.

Exhibit 9-2 -Refer to Exhibit 9-2.If the demand curve shifts from D₁ to D₂,then

Exhibit 9-1 -Refer to Exhibit 9-1.If the market demand curve is D₁,what happens in the long run?

Exhibit 9-1 -Refer to Exhibit 9-1.If the market demand curve is D₃,what happens over time?