1. Firms exist for all but which one of the following reasons?

To reduce transactions costs

To produce things

To organize teams

To monitor shirking

To reduce the costs of buying

2. The cost of alternatives given up that do not carry dollar costs is

not of interest to a business enterprise.

assigned a dollar value and recorded as an explicit cost.

considered an implicit cost.

part of economic profits.

3. Ralph's Travel Agency had accounting profits of $50,000 and implicit costs of $30,000. What were economic profits?

$50,000

$30,000

$20,000

The amount cannot be determined from the information given.

4. Last spring, Coil Spring Co. reported that average fixed costs had increased, but average variable costs were unchanged. This indicates that

marginal costs are less than average variable cost but greater than average cost.

fixed costs have increased.

output is declining.

marginal costs have increased.

5. A firm that owns a car rental agency, a modeling agency, a French bakery, and a pet store is

horizontally integrated.

vertically integrated.

inefficient.

a perfect competitor.

a conglomerate.

6. Technical efficiency is

using the least-cost method of production.

the method of production that minimizes physical usage of inputs according to some specific rule.

the process of turning inputs into outputs.

the process of minimizing output with a given level of inputs.

the method of production that uses the least labor per unit of capital.

7. What is one thing that entrepreneurs do NOT do?

They identify consumer demands.

They establish supply and demand.

They organize production.

They allocate resources.

They acquire assets.

8. If Fred Morris buys wood and ivory every month to manufacture pianos in the plant he has leased for four years, he is operating

in the long run.

without a production function.

in the short run.

a vertically integrated firm.

9. Which of the following is most likely to be an implicit cost of production?

Wages paid to skilled workers

Payments for inputs purchased from other companies

Interest paid on a loan

Rental income from real property

Rental income not received from use of a self-owned piece of land

10. The Southern Tree Trimming Corporation reported an accounting profit of $35,000 and a normal rate of return of 15 percent on capital and enterprise of $30,000. The opportunity cost of labor is $15,500. What is the economic profit?

$110,500

$19,500

$15,000