1. Economists normally assume that the goal of a firm is to
(i) make profit as large as possible even if it means reducing output.
(ii) make profit as large as possible even if it means incurring a higher total cost.
(iii) make revenue as large as possible.
a. (i) and (ii)
b. (i) and (iii)
c. (ii) and (iii)
d. None of the above are correct.
2. Explicit costs
a. require an outlay of money by the firm.
b. include all of the firm’s opportunity costs.
c. include income that is forgone by the firm’s owners.
d. All of the above are correct.
3. An example of an explicit cost of production would be
a. the cost of forgone labor earnings for an entrepreneur.
b. the lost opportunity to invest in other capital markets when the money is invested in one’s
business.
c. the cost of flour for a baker.
d. None of the above are correct.
4. Which of the following is an implicit cost?
(i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street
brokerage firm
(ii) interest paid on the firm’s debt
(iii) rent paid by the firm to lease office space
a. (ii) and (iii)
b. (i) and (iii)
c. (i) only
d. All of the above are correct.
5. Economic profit is equal to
a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
