Multiple Choice Questions:
1. An explicit cost
a. Is an opportunity cost.
b. Is an out-of-pocket expense.
c. Does not require an outlay of money.
d. Is characterized by both a and b.
e. Is characterized by both a and c.
2. Which of the following is false?
a. Explicit costs are input costs that require a monetary payment.
b. Implicit costs do not represent an explicit outlay of money.
c. Both implicit and explicit costs are opportunity costs.
d. Sunk costs are irrelevant for any future action.
e. All of the above are true.
3. Which of the following is false?
a. Profits are a firm’s total revenue minus its total costs.
b. Accounting profits are actual revenues minus actual expenditures of money.
c. Economic profits are actual revenues minus all explicit and implicit costs.
d. If a firm has any implicit costs, its economic profits exceed its accounting profits.
e. All of the above are true.
4. The crucial difference between how economists and accountants analyze the profitability of a business has to do with whether or not _____________ are included when calculating total production costs.
a. Implicit costs
b. Cash payments
c. Sunk costs
d. Explicit costs
5. Which of the following is true?
a. If a firm’s implicit costs are zero, accounting profits equal economic profits.
b. If a firm’s implicit costs are positive, accounting profits exceed economic profits.
c. If a firm’s implicit costs are positive, economic profits exceed accounting profits.
d. Both a and b are true.
e. Both a and c are true.
6. Cassie produces and sells 300 jars of homemade jelly each month for $3 each. Each month, she pays $200 for jars, pays $150 for ingredients, and uses her own time, with an opportunity cost of $300. Her economic profits each month are
a. $250.
b. $400.
c. $550.
d. $600.
e. minus $350.
7. Sunk costs
a. Should be included when weighing the marginal costs of production against the marginal benefits received.
b. Have already been incurred and cannot be recovered.
c. Plus variable costs equal the total costs of production.
d. Are relevant to future decisions and should be carefully considered.
8. The short run
a. Is a period too brief for any inputs to be varied.
b. Is a period that involves no fixed costs.
c. Is normally a period of one year.
d. Is none of the above.