1. According to the text, economists assume that business firms transform inputs into useful goods and services so as to _____.

• a. create a reputation of social service
• b. earn profits and avoid losses
• c. evade government regulations
• d. exploit the public and appropriate all of the value from exchange

2. For most firms, earning profits and avoiding losses are key objectives.

• a. True
• b. False

3. Pure economic profit equals normal profit of the company.

• a. True
• b. False

4. One example of variable costs of production would be paying $1,100 each month for a business-insurance policy lasting three years.

• a. True
• b. False

5. The text explains that fixed costs of production are the same as variable costs.

• a. True
• b. False

6. The short run in the economics of production is a period of time _____.

• a. established by federal law for tax purposes
• b. during which the firm has inputs such as plant size that cannot be varied
• c. assumed by business convention to be one year
• d. during which output cannot be varied

7. Assuming that firms maximize profit is familiar and largely without controversy.

• a. True
• b. False

8. The idea that firms are in business to maximize profit is _____.

• a. not the way most economists think about market economies
• b. not controversial because it has been ignored in mainstream economic theory
• c. completely unrealistic compared to actual firm behavior
• d. familiar but also controversial

9. Profit equals _____.

• a. cost plus revenue
• b. cost divided by revenue
• c. revenue minus costs
• d. revenue divided by cost

10. A company's profit is the difference between its revenue and its costs.

• a. True
• b. False

11. Explicit costs of production include _____.

• a. payments to suppliers of intermediate goods and factors of production
• b. opportunity costs of using resources that the owner or the firm supplies without a specific payment
• c. earnings from a firm's investments in equipment
• d. profit less revenue

12. Which kinds of costs involve monetary payments to suppliers of a resource?

• a. Implicit and explicit costs
• b. Neither implicit nor explicit costs
• c. Implicit costs only
• d. Explicit costs only

13. Economists define costs of production as including explicit costs but NOT implicit costs.

• a. True
• b. False

14. Implicit costs of production involve opportunity costs of using resources that the firm or its owners contribute without taking an explicit payment.

• a. True
• b. False

15. Accounting costs include _____.

• a. implicit costs and explicit costs
• b. implicit costs only
• c. explicit costs only
• d. the difference between explicit and implicit costs

16. The interest paid on a business loan from a bank is an implicit cost of production.

• a. True
• b. False

17. Normal profit is equal to _____.

• a. the opportunity cost of using capital contributed by the firm's owners
• b. revenue minus accounting costs
• c. revenue from product sales plus implicit costs minus explicit costs
• d. revenue from product sales

18. Implicit costs are accounting costs, recorded in the accounts of the firm.

• a. True
• b. False

19. Accounting profit equals Revenue minus Explicit Costs.

• a. True
• b. False

20. Accounting costs are most closely identified with _____ of production.

• a. implicit costs
• b. all opportunity costs
• c. explicit costs
• d. normal-profit costs