Chapter 13(sample exercise)1

Chapter 13(sample exercise)1 - Chapter 13The Costs of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 13—The Costs of Production 1. Economists normally assume that the goal of a firm is to (i) make profit as large as possible even if it means reducing output. (ii) make profit as large as possible even if it means incurring a higher total cost. (iii) make revenue as large as possible. a. (i) and (ii) b. (i) and (iii) c. (ii) and (iii) d. None of the above are correct. 2. John owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? a. wages John could earn washing windows b. dividends John's money was earning in the stock market before John sold his stock and bought a shoe-shine booth c. the cost of shoe polish d. All of the above are correct. 3. Which of the following is an implicit cost of owning a business? (i) interest expense on existing business loans (ii) forgone savings account interest when personal money is invested in the business (iii) damaged or lost inventory a. (i) only b. (ii) only c. (i) and (ii) d. All of the above are correct. Scenario 13-1 Joe wants to start his own business. The business he wants to start will require that he purchase a factory that costs $300,000. To finance this purchase, he will use $100,000 of his own money, on which he has been earning 10 percent interest. In addition, he will borrow $200,000, and he will pay 12 percent interest on that loan. 4. Refer to Scenario 13-1 . For the first year of operation, what is the explicit cost of purchasing the factory? a. $10,000 b. $12,000 c. $20,000 d. $24,000 5. Refer to Scenario 13-1 . For the first year of operation, what is the opportunity cost of purchasing the factory? a. $10,000 b. $20,000 c. $24,000 d. $34,000 6. Economic profit is equal to a. total revenue minus the explicit cost of producing goods and services.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
b. total revenue minus the opportunity cost of producing goods and services. c. total revenue minus the accounting cost of producing goods and services. d. average revenue minus the average cost of producing the last unit of a good or service. 7. Gordon is a senior majoring in computer network development at Smart State University. While he has been attending college, Gordon started a computer consulting business to help senior citizens set up their network connections and teach them how to use e-mail. Gordon charges $25 per hour for his consulting services. Gordon also works 5 hours a week for the Economics Department to maintain that department's Web page. The Economics Department pays Gordon $20 per hour. From this information we can conclude: a. Gordon should increase the number of hours he works for the Economics Department to make it comparable to his consulting business income. b.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 9

Chapter 13(sample exercise)1 - Chapter 13The Costs of...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online