Reading 16: Organizing Production - LOS a ～ Q1-4 style, black, example, following

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1.Which of the following is an example of an implicit cost?

A)   The opportunity cost of a firm's equity capital.

B)   Labor salaries.

C)   Rent.

D)   Treating the firm's customers to a round of golf.

2.Which of the following most accurately describes economic profit? Economic profits are zero when:

A)   total revenue equals the sum of all opportunity costs.

B)   implicit costs equal explicit costs.

C)   implied rental rates equal forgone interest.

D)   economic depreciation equals zero.

3.Which of the following most completely describes opportunity costs?

A)   Opportunity costs include implicit and explicit costs.

B)   Opportunity costs include only explicit costs.

C)   Opportunity costs include only implicit costs.

D)   Opportunity costs are used to determine normal profit but not economic profit.

4.Assume that a firm used $60 million in labor and materials to generate $100 million in total revenues. Other costs included $200,000 in foregone interest, economic depreciation of $40,000, and normal profit of $130,000. The economic profit to this firm is closest to:

A)   $39,606,000.

B)   $39,630,000.

C)   $39,712,000.

D)   $40,000,000.

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答案和详解如下：

1.Which of the following is an example of an implicit cost?

A)   The opportunity cost of a firm's equity capital.

B)   Labor salaries.

C)   Rent.

D)   Treating the firm's customers to a round of golf.

Click for Answer and Explanation A)

Implicit costs include the opportunity cost of a firm's equity. Explicit costs are measurable cash flows for operating expenses.

2.Which of the following most accurately describes economic profit? Economic profits are zero when:

A)   total revenue equals the sum of all opportunity costs.

B)   implicit costs equal explicit costs.

C)   implied rental rates equal forgone interest.

D)   economic depreciation equals zero.

Click for Answer and Explanation A)

Economic profit are zero when total revenues are just equal to the sum of all opportunity costs, which includes all implicit and explicit costs.

3.Which of the following most completely describes opportunity costs?

A)   Opportunity costs include implicit and explicit costs.

B)   Opportunity costs include only explicit costs.

C)   Opportunity costs include only implicit costs.

D)   Opportunity costs are used to determine normal profit but not economic profit.

Click for Answer and Explanation A)

Opportunity costs include implicit and explicit costs. Normal profit is the opportunity cost of owners’ time, resources, and expertise.

4.Assume that a firm used $60 million in labor and materials to generate $100 million in total revenues. Other costs included $200,000 in foregone interest, economic depreciation of $40,000, and normal profit of $130,000. The economic profit to this firm is closest to:

A)   $39,606,000.

B)   $39,630,000.

C)   $39,712,000.

D)   $40,000,000.

Click for Answer and Explanation B)

Economic profit = total revenue – opportunity costs = total revenue – (explicit + implicit costs). In this case, the labor and material cost of $60 million is the explicit cost. Implicit costs include the $200,000 in foregone interest, economic depreciation of $40,000, and normal profit of $130,000. So, total implicit costs equal $370,000 = $200,000 + $40,000 + $130,000. Thus, economic profit is $100,000,000 - $60,000,000 - $370,000 = $39,630,000.

kyle_s

thanks a lot