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Exercise 4.1: Multiple Choice

1. Economists assume that the goal of the firm is to maximize profits. 2. Accounting profit is defined as total revenue minus explicit costs. 3. A profit-maximizing firm will produce the quantity of output where marginal revenue equals marginal cost, which corresponds to the highest level of profit.

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215 views4 pages

Exercise 4.1: Multiple Choice

1. Economists assume that the goal of the firm is to maximize profits. 2. Accounting profit is defined as total revenue minus explicit costs. 3. A profit-maximizing firm will produce the quantity of output where marginal revenue equals marginal cost, which corresponds to the highest level of profit.

Uploaded by

drkmatter
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as RTF, PDF, TXT or read online on Scribd
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Exercise 4.

1
Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1.
(2 points) Economists

____

2.

____

3.

____

4.

____

5.

____

6.

assume that the goal of the firm is to maximize total revenue maximize profits minimize costs equate total revenue and total cost break even in the long run (2 points) The behavior of firms is best understood by focusing on a. money profit b. economic profit c. accounting profit d. economic profit minus implicit costs e. money profit minus explicit costs (2 points) Accounting profit is defined as a. total revenue minus opportunity cost b. total revenue minus all costs of production c. total revenue minus explicit costs d. the sum of marginal revenues received from all units produced e. the difference between marginal revenue and marginal cost (2 points) William quits his job where he earns an annual salary of $75,000 and opens a management consulting business, charging an hourly rate of $120. He works out of his home, converting a storeroom into an office. (Zoning restrictions prevent William from renting out the room.) Start-up costs are financed by selling $15,000 worth of bonds he inherited that were earning annual interest payments of $900. During his first year, William incurs expenses for supplies and utilities that total $3,500. If William bills 500 hours of consulting time in the first year, he earns an economic profit equal to a. $55,600 b. -$15,000 c. -$19,400 d. -$34,400 e. $41,500 (2 points) The return to owners for innovation and risk taking is a firm's a. economic profit after taxes b. total revenue c. total opportunity cost d. total implicit cost e. money profit after taxes (2 points) The demand curve facing a firm a. indicates the quantity of output that customers will purchase from that firm, at various prices b. shows the minimum cost of producing any level of output c. is drawn assuming that the firm is operating in the short run d. indicates how much output a profit-maximizing firm will produce, at various prices e. is downward sloping because consumers have less money to spend, the more output they purchase a. b. c. d. e.

____

7.

(2 points) If

the price of gasoline rises at the Exxon gas station at a busy intersection, the Mobil station at the same intersection will experience a. an outward shift of the demand curve it faces b. an inward shift of the demand curve it faces c. a rightward movement along the same demand curve it faces d. a leftward movement along the same demand curve it faces e. neither a shift in nor a movement along the demand curve it faces

____

8.

____

can be said about the firm shown in Figure 7-2? the firm faces a perfectly elastic demand curve the firm will maximize profits at the point where the TR and TC curves intersect if price rises, the TC curve will shift upward if fixed costs rise, the TR curve will pivot upward the firm faces a downward-sloping demand curve 9. (2 points) A profit-maximizing firm will never increase production if doing so causes total revenue to decrease. a. True b. False a. b. c. d. e.

(2 points) What

____ 10.

Figure 7-5, which of the five output levels corresponds to the highest level of total revenue? level A level B level C level D level E ____ 11. (2 points) In Figure 7-5, which of the five output levels corresponds to the highest level of profit? a. level A b. level B c. level C d. level D e. level E ____ 12. (2 points) In Figure 7-5, at which of the five output levels is profit equal to zero? a. level A b. level B c. level C d. level D e. level E a. b. c. d. e.

(2 points) In

Exercise 4.1 Answer Section


MULTIPLE CHOICE 1. ANS: NAT: TOP: 2. ANS: NAT: TOP: 3. ANS: NAT: TOP: 4. ANS: NAT: TOP: 5. ANS: NAT: TOP: 6. ANS: NAT: TOP: 7. ANS: NAT: TOP: 8. ANS: NAT: TOP: 9. ANS: NAT: TOP: 10. ANS: NAT: TOP: 11. ANS: NAT: TOP: 12. ANS: NAT: TOP: B PTS: 2 DIF: 1 financial theories, analysis, reporting, and markets The Goal of Profit Maximization B PTS: 2 DIF: 2 financial theories, analysis, reporting, and markets The Goal of Profit Maximization C PTS: 2 DIF: 1 financial theories, analysis, reporting, and markets Understanding Profit C PTS: 2 DIF: 3 financial theories, analysis, reporting, and markets Understanding Profit A PTS: 2 DIF: 2 financial theories, analysis, reporting, and markets Why Are There Profits? A PTS: 2 DIF: 1 financial theories, analysis, reporting, and markets The Demand Constraint A PTS: 2 DIF: 2 financial theories, analysis, reporting, and markets The Demand Constraint A PTS: 2 DIF: 2 financial theories, analysis, reporting, and markets The Demand Constraint A PTS: 2 DIF: 1 financial theories, analysis, reporting, and markets The Total Revenue and Total Cost Approach E PTS: 2 DIF: 2 financial theories, analysis, reporting, and markets The Total Revenue and Total Cost Approach C PTS: 2 DIF: 1 financial theories, analysis, reporting, and markets The Total Revenue and Total Cost Approach D PTS: 2 DIF: 2 financial theories, analysis, reporting, and markets The Total Revenue and Total Cost Approach LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits LOC: Marginal costs and benefits

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