CHAP 13

Economists assume that the typical person who starts her own business does so with the intention of

• donating the profits from her business to charity.
• capturing the highest number of sales in her industry.
• maximizing profits.
• minimizing costs.

The amount of money that a firm receives from the sale of its output is called

• total gross profit.
• total net profit.
• total revenue.
• net revenue.

Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be

• $1,000 if she sells 100 candles.
• $500 if she sells 25 candles.
• $20 regardless of how many candles she sells.
• $200 if she sells 5 candles.

Profit is defined as

• net revenue minus depreciation.
• total revenue minus total cost.
• average revenue minus average total cost.
• marginal revenue minus marginal cost.

The things that must be forgone to acquire a good are called

• implicit costs.
• opportunity costs.
• explicit costs.
• accounting costs.

Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's

• total revenue.
• opportunity costs.
• explicit costs.
• marginal costs.

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?

• $30
• $140
• $170
• $300

Explicit costs

• require an outlay of money by the firm.
• include all of the firm's opportunity costs.
• include the value of the business owner’s time.
• Both b and c are correct.

A difference between explicit and implicit costs is that

• explicit costs must be greater than implicit costs.
• explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.
• implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
• implicit costs must be greater than explicit costs.

Which of the following is an example of an implicit cost? (i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm (ii) interest paid on the firm's debt (iii) rent paid by the firm to lease office space

• (ii) and (iii) only
• (i) and (iii) only
• (i) only
• (iii) only