Question

2. If marginal benefit from a particular activity is greater than its marginal cost, a rational choice involves

a. More of the activity

b. Less of the activity

c. No more of the activity

d. More or less, depending on the benefits of other activities

.

3. Which of the following is an example of an implicit cost

a. Dividends paid out to stockholders

b. The uncompensated services of the spouse of a firm's owner

c. Payments made to audit companies

d. Payments made to workers who are unproductive

.

4. Suppose, a measure of total output of an American economy takes into account the production of any American or American-owned entity, regardless of where in the world the actual production process is taking place. Then this estimate of total output is

a. Gross Domestic Product

b. Gross National product

c. Net Domestic Product

d. None of a, b and c

.

5. Economic profit is calculated as deviation between

a. Total revenue - total explicit & implicit costs

b. Total revenue - total explicit costs

c. Total revenue - total implicit costs

d. All a, b, and c will give same measure

Answer 1

2 : Option a) More of the activity

The activity reaches an equilibrium where marginal benefit equals marginal cost. But when marginal benefit exceeds the marginal cost that means there are unrealized gains yet to be explored and thus should increase the activity level

3 : Option b) The uncompensated services of the spouse of a firm's owner

Implicit costs are those costs which are not really accounted for. Herein for all the other options there's actually evidence of cash outflows and thus they cannot be implicit cost.

4 : Option b) Gross National Product

Gross national product is an estimate of total value of all the final products and services turned out in a given period of time by the means of production owned by a country's residents. Here we see in the given question the country which is talked about is America.

5 : Option a) Total revenue - total explicit & implicit costs

Economic profit not only takes into account the real cost or explicit cost, rather it also takes into account the opportunity costs of activities which are never really accounted for and are implicit costs.