Chapter 9

Economic cost can best be defined as

• any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.

• any contractual obligation to labor or material suppliers.

• a payment that must be made to obtain and retain the services of a resource.

• all costs exclusive of payments to fixed factors of production.

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

• payments of wages to its office workers

• rent paid for the use of equipment owned by the Schultz Machinery Company

• use of savings to pay operating expenses instead of generating interest income

• economic profits resulting from current production

To the economist, total cost includes

• explicit and implicit costs.

• neither implicit nor explicit costs.

• implicit, but not explicit, costs.

• explicit, but not implicit, costs.

Accounting profits are typically

• greater than economic profits because the former do not take explicit costs into account.

• equal to economic profits because accounting costs include all opportunity costs.

• smaller than economic profits because the former do not take implicit costs into account.

• greater than economic profits because the former do not take implicit costs into account.

Economic profits are calculated by subtracting

• explicit costs from total revenue.

• implicit costs from total revenue.

• implicit costs from normal profits.

• explicit and implicit costs from total revenue.

The basic characteristic of the short run is that

• barriers to entry prevent new firms from entering the industry.

• the firm does not have sufficient time to change the size of its plant.

• the firm does not have sufficient time to cut its rate of output to zero.

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

To economists, the main difference between the short run and the long run is that

• the law of diminishing returns applies in the long run, but not in the short run.

• in the long run all resources are variable, while in the short run at least one resource is fixed.

• fixed costs are more important to decision making in the long run than they are in the short run.

• in the short run all resources are fixed, while in the long run all resources are variable.

The basic difference between the short run and the long run is that

• all costs are fixed in the short run, but all costs are variable in the long run.

• the law of diminishing returns applies in the long run but not in the short run.

• at least one resource is fixed in the short run, while all resources are variable in the long run.

• economies of scale may be present in the short run but not in the long run.

The short run is characterized by

• plenty of time for firms to either enter or leave the industry.

• increasing but not diminishing returns.

• fixed plant capacity.

• zero fixed costs.

The long run is characterized by

• the relevance of the law of diminishing returns.

• at least one fixed input.

• insufficient time for firms to enter or leave the industry.

• the ability of the firm to change its plant size.