Profit and Max

Suppose the Chicago Cubs could rent out Wrigley Field (the field the players play on) to local youth leagues for $11,000 per month. The $11,000 per month reflects the ________ of capital.

• a. implicit cost

• b. explicit cost

• c. direct cost

• d. total cost

• e. average fixed cost

Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband-an economist-claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred ________ in ________ costs.

• a. $86,004; implicit

• b. $43,002; implicit

• c. $43,002; explicit

• d. $86,004; explicit

• e. $0; explicit

Accounting profit differs from economic profit because:

• a. of differences in the manner in which revenue is calculated.

• b. economic costs include depreciation, while accounting costs do not.

• c. accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs, while economic costs include only explicit costs.

• d. economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include only explicit costs.

• e. economic profit subtracts the explicit costs from total revenue, while accounting profit subtracts the implicit costs from total revenue.

If economic profit for a firm is negative:

• a. the firm should exit the industry in the long run.

• b. accounting profit must also be negative.

• c. the firm should stay in business so long as accounting profit is positive.

• d. the firm will not owe any taxes to the government.

• e. the firm is earning a normal profit.

Charges that must be paid for the use of factors of production such as labor and capital are:

• a. explicit costs.

• b. accounting profits.

• c. implicit costs.

• d. economic profits

• e. normal profits.

For most firms, economic profit is:

• a. less than accounting profit.

• b. equal to accounting profit.

• c. greater than accounting profit.

• d. negative in the short run.

• e. positive in the short run but negative in the long run.

Bessie wants to calculate the accounting and economic profits on her cattle farm in Nebraska. She pays $30,000 per year for the cost of raising cattle, $80,000 in wages, $20,000 in insurance, and she forgoes $30,000 per year that she could make as a teacher. If her total revenue equals $140,000, that means her accounting profit is ________ and her economic profit is ________.

• a. $10,000; -$20,000

• b. $30,000; -$30,000

• c. -$10,000; -$10,000

• d. $60,000; $30,000

• e. $10,000; - $30,000

Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, this means that the store's accounting profit equaled:

• a. $10,000.

• b. $50,000.

• c. $100,000.

• d. $200,000.

• e. $100,000.

Some highways have one lane, others have two, three, or more. If each lane costs $10 million per mile, an economist would assume that the total benefit of a three-lane highway must be:

• a. less than $10 million per mile.

• b. $10 to $20 million per mile.

• c. $20 to $30 million per mile.

• d. $30 million or more per mile.

• e. $0, as the cost of building the highway is a sunk cost.

Sigmund's optimal number of tutoring hours is:

• a. 5.

• b. 4.

• c. 3.

• d. 2.

• e. 1.