Economics Exam
Answers to Week 1 MC Problems
Chapter 1: Managers, Profits, and Markets
Chapter 3: Marginal analysis for Optimal Decisions the correct answers are marked red. 1 Economic theory is a valuable tool for business decision making because it a. identifies for managers the essential information for making a decision. b. assumes away the problem. c. creates a realistic, complex model of the business firm. d. provides an easy solution to complex business problems. 2 Economic profit is a. the difference between total revenue and the opportunity cost of all of the resources used in production. b. the difference between total revenue and the implicit costs of using owner-supplied resources. c. the difference between accounting profit and the opportunity cost of the market-supplied resources used by the firm. d. the difference between accounting profit and explicit costs. 3 Consider a firm that employs some resources that are owned by the firm. When accounting profit is zero, economic profit a. must also equal zero. b. is sure to be positive. c. must be negative and shareholder wealth is reduced. d. cannot be computed accurately, but the firm is breaking even nonetheless. 4 Suppose Marv, the owner-manager of Marv’s Hot Dogs, earned $72,000 in revenue last year. Marv’s explicit costs of operation totaled $36,000. Marv has a Bachelor of Science degree in mechanical engineering and could be earning $30,000 annually as mechanical engineer. a. Marv's implicit cost of using owner-supplied resources is $36,000. b. Marv's economic profit is $36,000. c. Marv’" s implicit cost of using owner-supplied resources is $30,000. d. Marv's economic profit is $6,000. e. both c and d. 5 Owners of a firm want the managers to make business decisions that will
a. maximize the value of the firm.
b. maximize expected profit in each period of operation.
c. maximize the market
Chapter 1: Managers, Profits, and Markets
Chapter 3: Marginal analysis for Optimal Decisions the correct answers are marked red. 1 Economic theory is a valuable tool for business decision making because it a. identifies for managers the essential information for making a decision. b. assumes away the problem. c. creates a realistic, complex model of the business firm. d. provides an easy solution to complex business problems. 2 Economic profit is a. the difference between total revenue and the opportunity cost of all of the resources used in production. b. the difference between total revenue and the implicit costs of using owner-supplied resources. c. the difference between accounting profit and the opportunity cost of the market-supplied resources used by the firm. d. the difference between accounting profit and explicit costs. 3 Consider a firm that employs some resources that are owned by the firm. When accounting profit is zero, economic profit a. must also equal zero. b. is sure to be positive. c. must be negative and shareholder wealth is reduced. d. cannot be computed accurately, but the firm is breaking even nonetheless. 4 Suppose Marv, the owner-manager of Marv’s Hot Dogs, earned $72,000 in revenue last year. Marv’s explicit costs of operation totaled $36,000. Marv has a Bachelor of Science degree in mechanical engineering and could be earning $30,000 annually as mechanical engineer. a. Marv's implicit cost of using owner-supplied resources is $36,000. b. Marv's economic profit is $36,000. c. Marv’" s implicit cost of using owner-supplied resources is $30,000. d. Marv's economic profit is $6,000. e. both c and d. 5 Owners of a firm want the managers to make business decisions that will
a. maximize the value of the firm.
b. maximize expected profit in each period of operation.
c. maximize the market