Costs of Production - Costs of Production 1. Economic cost...

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Costs of Production 1. Economic cost can best be defined as: A) any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B) any contractual obligation to labor or material suppliers. C) compensations that must be received by resource owners to insure their continued supply. D) all costs exclusive of payments to fixed factors of production. 2. Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? A) payments of wages to its office workers B) rent paid for the use of equipment owned by the Schultz Machinery Company C) depreciation charges on company-owned equipment D) economic profits resulting from current production 3. Which of the following is most likely to be an implicit cost for Company X? A) depreciation charges on company-owned equipment B) rental payments on IBM equipment C) payments for raw materials purchased from Company Y D) transportation costs paid to a nearby trucking firm 4. Costs to an economist: A) consist only of explicit costs. B) may or may not involve monetary outlays. C) never reflect monetary outlays. D) always reflect monetary outlays. 5. Implicit and explicit costs are different in that: A) explicit costs are relevant only in the short run. B) implicit costs are relevant only in the short run. C) the latter refer to nonexpenditure costs and the former to out-of-pocket costs. D) the former refer to nonexpenditure costs and the latter to out-of-pocket costs. Page 1
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Profits 6. Economic profits are calculated by subtracting: A) explicit costs from total revenue. B) implicit costs from total revenue. C) implicit costs from normal profits. D) explicit and implicit costs from total revenue. 7. Normal profit is: A) determined by subtracting implicit costs from total revenue. B) determined by subtracting explicit costs from total revenue. C) the return to the entrepreneur when economic profits are zero. D) the average profitability of an industry over the preceding 10 years. Short run versus long run 8. The basic characteristic of the short run is that: A) barriers to entry prevent new firms from entering the industry. B) the firm does not have sufficient time to change the size of its plant. C) the firm does not have sufficient time to cut its rate of output to zero. D) a firm does not have sufficient time to change the amounts of any of the resources it employs. 9. Which of the following represents a long-run adjustment? A) a farmer uses an extra dose of fertilizer on his corn crop B) unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants C) a steel manufacturer cuts back on its purchases of coke and iron ore D) a supermarket hires four additional clerks 10. To economists the main difference between the short run and the long run is that: A) the law of diminishing returns applies in the long run, but not in the short run. B)
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Costs of Production - Costs of Production 1. Economic cost...

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