Nsu Economic Thinking Midterm Practice Questions

1. Which of the following statements is false?

a. Explicit costs of using market-supplied resources entail an opportunity cost equal to the dollar cost of obtaining the resources in the market.

b. Accounting profit is usually bigger economic profit.

c. If economic profit is positive, accounting profit must also be positive.

d. If economic profit is negative, accounting profit must also be negative.

2. Economic profit is the best measure of a firm’s performance because

a. normal profit is generally too difficult to measure.

b. economic profit fully accounts for all sources of revenue.

c. only explicit costs influence managerial decisions since, in general, only explicit costs can be subtracted from revenue for the purposes of computing taxable profit.

d. the opportunity cost of using ALL resources is subtracted from total revenue.

3. A firm will maximize profit by producing that level of output at which

a. the additional revenue from the last unit sold equals the additional cost of the last unit.

b. total revenue exceeds total cost by the largest amount.

c. total revenue equals total cost.

d. both a and b.

4. A Blue Ribbon Committee has decided that the amount of acid rain should be reduced and is trying to determine the optimal level of reduction. There are benefits from reducing acid rain (reduced loss of wildlife and forest, better health, etc.), but there are also costs. The committee estimates that the marginal benefit of each unit of reduction is $1,400 − 5R, where R is units of reduction, and the marginal cost is

2R. If the committee wants to maximize the net benefit from reducing acid rain, what is marginal cost at the optimal level of reduction?

a. $20

b. $100

c. $200

d.$400

5. In making a decision about whether to increase its advertising budget the firm management should not consider

a. the added revenue from increased sales

b. the added cost of producing more goods for sale.

c. interest payments on...