Managerial Economics International Edition 3rd Edition – Test Bank

Managerial Economics International Edition 3rd Edition by Luke M. Froeb – Test Bank

CHAPTER 3

1. You and two partners start a company. However, your partners play no role in running the company. You devote all our time and talent to run your own business rather than working for someone else. You incur an(a):

1. explicit cost.    
2. marginal cost.
3. sunk cost
4. opportunity cost.

ANS: D

1. A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the firm’s accounting profit for the month equals:

1. $300,000
2. $60,000
3. $450,000
4. $240,000

ANS: A

1. A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the economic profit for the month equals:

1. $300,000
2. $60,000
3. $450,000
4. $240,000

ANS: D

1. The opportunity cost of an action:

1. is equal to the marginal cost of an action
2. is equal to explicit cost
3. is equal to the next best alternative forgone
4. is the total cost of an action

ANS: C

1. Economists argue that:

1. 1. accounting costs consider all types of costs including implicit costs
   2. there is an opportunity cost associated with all decisions.
   3. economic decisions do not have opportunity costs but other decisions do.
   4. economic decisions should consider sunk costs

ANS: B

1. James used $250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store. After one year, James sold the business for 320,000.  His accountant calculated his profit to be:

1. $320,000
2. $70,000
3. $282,500
4. $32,500

ANS: B

1. James used $250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store. After one year, James sold the business for 320,000.  An economist calculated his profit to be:

1. $320,000
2. $70,000
3. $282,500
4. $32,500

ANS: D

1. Variable costs are

1. costs that vary with output
2. equal marginal costs
3. not considered in decision-making
4. equal to total costs

ANS: A