Organizing Production

If instead of working on his own as a consultant making $25,000, Joe takes a job at a bank, the $25,000 is

• An opportunity cost.

• A depreciation.

• A loss.

• An accounting profit

The implicit rental rate for capital includes the.....

• Total value of a piece of capital equipment.

• Interest income forgone by purchasing the piece of capital equipment

• Firm’s normal profit.

• Amount paid for the use of a piece of capital equipment owned by someone else.

Tudor's Deli and Catering could have sold their delivery van on December 31, 2010 for $16,000. If they could sell the same van on December 31, 2011, for $13,000, then the economic depreciation in 2011 for this van.....

• is $13,000.

• is $16,000.

• is $29,000.

• is $3,000.

Lucinda starts a business consulting company. She makes all the business decisions and bears the risk of running the business. The typical payment for Lucinda's work is ________.

• all the revenue greater than her opportunity cost.

• all the revenue greater than the capital investment.

• a normal profit.

• an economic profit.

Heidi quit her job as a chef making $40,000 per year to start her own restaurant. The first year, Heidi's restaurant earned $100,000 in revenue. Heidi pays $50,000 per year in wages to the waitresses and hostess and $20,000 per year to buy food. What is Heidi's profit as measured by an accountant for the year?

• $80,000

• $50,000

• $30,000

• -$10,000

A firm has achieved technological efficiency whenever it has....

• fully depreciated all its assets.

• produced the given output using the fewest inputs.

• produced the given output at the lowest cost.

• All of the above.

Firm A can produce a unit of output with 10 hours of labor and 5 units of material. Firm B can produce a unit of output with 5 hours of labor and 10 units of material. Firm C can produce a unit of output with 10 hours of labor and 10 units of material. If the prices of labor and material are $10 per hour and $5 per unit, respectively, which of these firms is the most technologically efficient?

• firm A only

• firm B only

• firm C only

• firm A and B could both be technologically efficient

Economic efficiency definitely occurs whenever....

• A firm cannot increase its output without increasing all its inputs.

• There are no implicit costs.

• The most modern technology is used in the production process.

• The firm produced a given output at the least cost.

Which of the following statements is TRUE?

I. A firm that is not economically efficient does not maximize profit.

II. Economic efficiency depends on the relative costs of resources.

III. A technological efficient firm is also economically efficient.

• I only   

• II only

• II and III

• I and II

The principal-agent problem refers to the fact that firms must.....

• Choose between economic efficiency and technological efficiency.

• Choose between a managerial and an incentive system.

• Devise incentives to get employees to work in the best interest of the firm's owners.

• Choose between operating as a partnership or corporation.