Q: Which formula correctly calculates accounting profit?

$$\text{Accounting Profit} = \text{Revenue} - \text{Explicit Costs}$$

Q: A firm’s total product (TP) is 120 units, and it employs 8 workers. What is its average product (AP)?

$$AP = TP / \text{Units of Labor} = 15$$

Question 1

Which of the following best describes an implicit cost for a business?

Accepted Answer

The opportunity cost of using self-owned resources.

Question 2

A firm earns $$500,000 in total revenue, pays 300$$,000 in explicit costs, and has $100,000 in implicit costs. What is its economic profit?

Accepted Answer

$100,000

Question 3

Which formula correctly calculates accounting profit?

Accepted Answer

$$	ext{Accounting Profit} = 	ext{Revenue} - 	ext{Explicit Costs}$$

Question 4

In the short run, which of the following is true about production inputs?

Accepted Answer

At least one input is fixed.

Question 5

If a firm’s total fixed cost (TFC) is $$200 and its total variable cost (TVC) is 300$$, what is its total cost (TC)?

Accepted Answer

$$TC = TFC + TVC = 500$$

Question 6

The law of diminishing returns states that:

Accepted Answer

After a certain point, adding more variable resources to fixed resources will cause marginal product to fall.

Question 7

Which formula represents average variable cost (AVC)?

Accepted Answer

$$AVC = TVC / Q$$

Question 8

Suppose a firm increases labor from 4 to 5 workers, and total product rises from 80 to 90 units. What is the marginal product (MP) of the fifth worker?

Accepted Answer

$$MP = 10$$

Question 9

Which of the following is a reason for economies of scale?

Accepted Answer

Managerial specialization

Question 10

A concrete plant is an example of a firm experiencing:

Accepted Answer

Economies of scale due to capital specialization

Question 11

If a firm’s total cost (TC) is $1,000 and it produces 50 units, what is its average total cost (ATC)?

Accepted Answer

$$ATC = TC / Q = 20$$

Question 12

Which of the following best describes the minimum efficient scale (MES)?

Accepted Answer

The output level at which long-run average total cost is minimized.

Question 13

A startup firm outsources its computing needs instead of buying servers. This is an example of:

Accepted Answer

Reducing fixed costs and increasing flexibility.

Question 14

Which formula correctly calculates marginal cost (MC)?

Accepted Answer

$$MC = \Delta TC / \Delta Q$$

Question 15

If a firm’s average fixed cost (AFC) is $10 and it produces 100 units, what is its total fixed cost (TFC)?

Accepted Answer

$$TFC = AFC 	imes Q = 1,000$$

Question 16

Which of the following is most likely to cause diseconomies of scale in a large corporation?

Accepted Answer

Coordination and communication problems

Question 17

A firm’s total product (TP) is 120 units, and it employs 8 workers. What is its average product (AP)?

Accepted Answer

$$AP = TP / 	ext{Units of Labor} = 15$$

Question 18

Which of the following is true about the long-run average total cost (LRATC) curve?

Accepted Answer

It is composed of the lowest points of all possible short-run ATC curves.

Question 19

If a firm’s accounting profit is $$150,000 and its implicit costs are 50$$,000, what is its economic profit?

Accepted Answer

$$100,000$$

Question 20

Which of the following scenarios best illustrates the law of diminishing returns?

Accepted Answer

A bakery hires more workers, but after a certain point, each additional worker adds less to total output.

Business and Production: Costs and Production Relationships in Microeconomics

Study Guide - Practice Questions

Study Guide - Flashcards