Question

ECON 2106 - Costs and Production

1. Which of the following is an implicit cost?

     a. Purchases of inventories

     b. Interest payments on loans

     c. Insurance premiums

     d. Value of owner's salary and benefits lost if they work in the business

2. Which of the following is an explicit cost?

     a. Foregone interest on the owner's savings

     b. Value of the entrepreneur's labor

     c. Interest payments on loans to buy equipment

     d. Lost wages from the entrepreneur's old job

3. The difference between an economist's conception of total costs and bookkeeper's

     conception of total costs is that an economist:

     a. places a lower value on psychic income.

     b. includes psychic income in explicit revenues.

     c. includes many implicit costs that are ignored by bookkeepers.

     d. ignores accounting data.

4. A firm could have positive accounting profits and negative economics profits if:

     a. psychic income were very large.

     b. implicit costs were large.

     c. fixed costs were spread over only a small output level.

     d. explicit costs were ignored by the accountant.

5. Profit:

     a.    is equal to firm's total revenues minus its total costs.

     b. is measured similarly by both economists and accountants.

     c. as measured by bookkeepers, is adjusted for the implicit costs of production.

     d. as   measured by economists, focuses exclusively on the implicit costs of production.

6. Explicit costs:

     a. do not necessarily involve actual outlays of money by a firm's owners.

     b. include wages, rent, interest, and other payments.

     c. minus implicit costs equal total costs.

     d. are relevant for economists, but not accountants.

7. The short run is a period of time:

     a. of insufficient length to vary a firms output.

     b. in which all factors of production can be varied.

     c. long enough for a firm to change its fixed inputs.

     d. during which output can be changed by employing different amounts of variable inputs.

8. The basic characteristic of the short run is that:

     a. a firm does not have sufficient time to change the amounts of any of the resources it employs.

     b. the firm does have time to change its rate of production, but not its productive capacity.

     c. the firm does have time to change the size of its factory or productive capacity.

      d. the firm does have time to change the amount of all of its resources

Use the table below to answer questions 9-10

Units of Labor	Output	Marginal Product
0	0
1	20
2	50
3	75
4	80

9. The marginal product of the second unit of the variable input (labor) is

(a)        20                                            (c)        30

(b)        25                                            (d)       50

10.   Diminishing marginal productivity occurs with which unit of labor?

(a)        first                                          (c)        third

(b)       second                                     (d)       fourth

Answer 1

1.

Implicit cost is a cost which occurs implicitly without a separate mention in the expenses. For example, the opportunity cost of owners salary and benefits if they work in the business.

the correct option is (d)

2.

An explicit cost is a direct cost of running a business like wages, interest etc. For example, the interest payment of loans will be part of the explicit cost and the rest of the options are opportunities forgone.

the correct option is (c)

3.

The difference between economist's and bookkeeper's conception of the total cost is that economist's conception of total cost includes all implicit costs that are ignored by bookkeepers.

the correct option is (c)

4.

A firm has positive accounting profit .i.e. total revenue minus explicit cost while economic profits take into account implicit costs as well. When economic profits are negative means implicit costs are very large.

the correct option is (b)