ECO 108: Introduction to Economics
Problem Set 7
Professor: Shanjun Li
A) are the only costs that matter to business owners.
B) usually exceed implicit costs.
C) are difficult to measure.
D) appear on the firm's balance sheet.
E) tend to be less than implicit costs.
A) are always fixed.
B) appear in the calculation of accounting profits.
C) measure the forgone opportunities of the owners of the business.
D) always exceed explicit costs.
E) are irrelevant to business decisions.
If a firm is earning zero economic profits
A) its revenues are sufficient to pay explicit costs, but not implicit costs.
B) the owner will not be able to pay himself or herself a salary.
C) it will shut down in the long run, but will continue to operate in the short run.
D) the owners are earning a return on their time and investment that is equal to
the opportunity costs of that time and investment.
E) its revenues are sufficient to pay variable costs, but not fixed costs.
Use the following to answer questions 4-8:
Pat used to work as an aerobics instructor at the local gym earning $35,000 a year.
quit that job and started working as a personal trainer. Pat makes $50,000 in total annual
revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000
per year for advertising and $3,000 per year for equipment.
What is Pat's explicit cost?
5.Pat's opportunity cost of running his own business is______ which is the_______.
A) $ 16,000; explicit cost
$ 51,000; economic cost
B) $ 16,000; accounting cost
$ 51,000; total cost
C) $ 35,000; implicit cost
Pat's accounting profit is _______.