Q: Which formula correctly calculates accounting profit?

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

Q: Which formula correctly calculates average variable cost?

$$ \text{Average Variable Cost} = \frac{\text{Total Variable Cost}}{\text{Quantity}} $$

Question 1

A company produces 500 units of a product and sells each unit for $20. What is the total revenue for the company?

Accepted Answer

$$ \10$$,000 $

Question 2

Which of the following best describes an implicit cost?

Accepted Answer

A non-monetary opportunity cost, such as forgone salary from another job

Question 3

If a firm has total revenue of $$5,000, explicit costs of 3$$,000, and implicit costs of $1,000, what is its economic profit?

Accepted Answer

$$ \1$$,000 $

Question 4

Which formula correctly calculates accounting profit?

Accepted Answer

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

Question 5

A firm pays $$2,000 in rent, 1$$,000 in wages, and has $$500 in forgone interest from its own capital. If its total revenue is 4$$,000, what is its economic profit?

Accepted Answer

$$ \500$$ $

Question 6

Which of the following is an example of a fixed cost for a car factory?

Accepted Answer

Monthly lease payment for the factory building

Question 7

In the short run, which of the following statements is true?

Accepted Answer

At least one input is fixed

Question 8

A company has total fixed costs of $1,200 and produces 120 units. What is the average fixed cost per unit?

Accepted Answer

$$ \10$$ $

Question 9

If total cost is $$2,000, total variable cost is 1$$,500, and the firm produces 100 units, what is the average total cost?

Accepted Answer

$$ \20$$ $

Question 10

Rose incurs $$7,200 per month in fixed costs operating her floral shop. She pays her employees 10 $$per hour and three assistants worked 120 hours each this month. Her other variable costs were $900 this month. What are Rose’s total variable costs and total costs this month?

Accepted Answer

Total variable costs are $$4,500; total costs are 12$$,600

Question 11

Which formula correctly calculates average variable cost?

Accepted Answer

$$ 	ext{Average Variable Cost} = \frac{	ext{Total Variable Cost}}{	ext{Quantity}} $$

Question 12

Which of the following is most likely to be a variable cost for a bakery?

Accepted Answer

Cost of flour used to bake bread

Question 13

A firm’s economic profit is zero. What does this imply about its accounting profit?

Accepted Answer

Accounting profit equals implicit costs plus zero

Question 14

If a firm’s total revenue is $$10,000, explicit costs are 7$$,000, and implicit costs are $2,000, what is the accounting profit?

Accepted Answer

$$ \3$$,000 $

Question 15

Which of the following is NOT an example of an explicit cost?

Accepted Answer

Forgone salary from working elsewhere

Question 16

In the long run, which of the following statements is true?

Accepted Answer

All inputs are variable

Question 17

A company’s total cost is $$8,000, total fixed cost is 2$$,000, and it produces 400 units. What is the average variable cost?

Accepted Answer

$$ \15$$ $

Question 18

Which of the following best describes the difference between economic profit and accounting profit?

Accepted Answer

Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit subtracts only explicit costs

Question 19

A short-run cost function assumes:

Accepted Answer

At least one input is fixed

Revenue, Cost, and Profit in Microeconomics: Concepts and Applications

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