Business

Chapter 7 Costs

MULTIPLE CHOICE

Choose the one alternative that best completes the statement or answers the question.

1) Economic costs of an input include

A) only implicit costs.

B) only explicit costs.

C) both implicit and explicit costs.

D) whatever management wishes to report the shareholders.

Answer: C

Diff: 0

Topic: Measuring Costs

2) Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work fulltime in her own business. She will invest her savings of $50,000 (which currently has an annual 10% rate of return) into the business. Her annual opportunity cost of this new business is

A) $0.

B) $40,000.

C) $45,000.

D) $90,000.

Answer: C

Diff: 1

Topic: Measuring Costs

3) The Nifty Gum Co. has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is

A) $0.

B) $1 million.

C) some amount greater than $0 but less than $1 million.

D) equal to the cost of the factory that was planned to be built there.

Answer: A

Diff: 1

Topic: Measuring Costs

4) Johnny has worked as a CPA for five years and wants to open his own public accounting practice. The cost of his college degree in accounting represents

A) the opportunity cost of this endeavor.

B) a sunk cost.

C) an expense.

D) a variable cost.

Answer: B

Diff: 1

Topic: Measuring Costs

5) If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as

A) the monthly mortgage payment the firm must pay.

B) the price the firm paid divided by twelve.

C) zero.

D) the rent the firm could earn if it rented the building to another firm.

Answer: D

Diff: 1

Topic: Measuring Costs

6) Joey's Lawncutting Service rents...