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Unformatted text preview: File: Ch06; CHAPTER 6: Cost Analysis Each question contains a code showing the section of the chapter text from which it was taken. The codes for this chapter are: Code Section 1 Relevant Costs 2 The Costs of Production 3 Returns to Scale, Scope, and Learning 4 Cost Analysis and Optimal Decisions 5 Appendix: Transfer Pricing 6 Special Appendix MULTIPLE CHOICE 1. Accounting profit typically exceeds economic profit because a) Accounting profit includes intangible revenue sources. b) Economic cost includes all relevant opportunity costs. c) Accounting cost contains implicit costs. d) Accounting practice is to allocate fixed costs to other activities. e) This is incorrect. Economic profit is usually greater than accounting profit. ANSWER: b SECTION: 1 2. The opportunity cost of investing all of your savings in a new business is equal to a) The potential profits from the business. b) The discounted present value of future profits. c) The rate of return on your savings you could have earned in a comparable investment. d) The risk of losing all your savings. e) The growth rate of your savings in the business. ANSWER: c SECTION: 1 3. The total economic cost of pursuing a three-year Masters degree after college is equal to a) The total cost of tuition, books, and living expenses during the program. b) The total cost of tuition and books. c) All expenses incurred during the program. d) All educational expenses during the program plus three years of wages that the individual would have earned if she had not elected the program. e) None of the answers above is correct. ANSWER: d SECTION: 1 6-1 Cost Analysis 4. A manager considering alternative courses of action should a) Not consider costs that are fixed with respect to the alternatives. b) Include both variable and fixed costs. c) Consider all past, present, and future costs. d) Incorporate only accounting cost in the decision-making process. e) Include only a portion of sunk costs. ANSWER: a SECTION: 1 5. Money spent on past research and development should be considered a) Implicit costs. b) Variable costs. c) Sunk costs. d) Relevant costs. e) Opportunity costs. ANSWER: c SECTION: 1 6. A law firm will be paid $500 to send one of its lawyers to take a routine deposition. The firm can send a 2nd-year lawyer whose usual billing rate is $150 per hour and who will lose a half day from working on a lucrative tax deal. Or it can send a 4th-year associate (billing rate $200 per hour) who is currently overseeing the selection and hiring of law students as summer associates. The firm should a) Assign the 2nd-year lawyer because his billable rate is lower. b) Assign the 4th-year lawyer because her billable rate is higher. c) Assign the 2nd-year lawyer because he is currently more productive....
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This note was uploaded on 03/11/2012 for the course ECON 333 taught by Professor Barkley during the Fall '08 term at CSU Fullerton.
- Fall '08