1.Which of the following examples illustrates a proportional income tax?

a.I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $1,200 in taxes.

b.I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $1,000 in taxes.

c.I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $800 in taxes.

d.I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $500 in taxes.

2.For most firms, the major difference between accounting profit and economic profit is that

a.explicit and implicit costs are included in the accounting profit while only explicit costs are included in economic profit.

b.accounting profit does not consider the opportunity cost of the firm's equity capital in terms of foregone interest and, therefore, generally overstates economic profit.

c.accounting profit omits the salaries of managers, and therefore, it is generally greater than economic profit.

d.accounting profit is based on opportunity cost, whereas economic profit is based on market transactions.

3.If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be

a.$8,000.

b.$60.

c.$6,000.

d.$40.

4.Average fixed costs

a.will always decrease as output expands.

b.are defined as the change in total costs divided by the change in output.

c.will always increase as output increases.

d.will remain unchanged as output expands.

5.Which of the following isNOTpart of the economic way of thinking?

a.People make decisions by comparing the marginal benefits to the marginal costs

b.When an option becomes more expensive, people will be less likely to choose it.

c.People always have perfect information when making decisions

d.All of the above are part of the economic way of thinking