EC120 Chapter 13: Chpt 13 Notes

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I(cid:374)dust(cid:396)ial o(cid:396)ga(cid:374)izatio(cid:374): the study of how fi(cid:396)(cid:373) s decisio(cid:374)s (cid:396)ega(cid:396)di(cid:374)g p(cid:396)ices a(cid:374)d (cid:395)ua(cid:374)tities depend on the market conditions they face. Total revenue: amount a firm receives for the sale of its output. Total cost: market value of the inputs a firm uses in production. Explicit costs: input costs that require an outlay of money by the firm. Implicit costs: input costs that do not require an outlay of money by the firm. The cost of capital as an opportunity cost. Opportunity cost equals the interest on the bank loan plus the forgone interest on savings. Economic profit: total revenue minus total(opportunity) cost, including both explicit and implicit costs. Accounting profit: total revenue minus total explicit cost. Production function: the relationship between quantity of inputs used to make a good and the quantity of output of that good. Marginal product: the increase in output that arises from an additional unit of input.

Related Questions

5. Economic profit is equal to

a. total revenue minus the explicit cost of producing goods and services.

b. total revenue minus the opportunity cost of producing goods and services.

c. total revenue minus the accounting cost of producing goods and services.

d. average revenue minus the average cost of producing the last unit of a good or service.

6. Accounting profit is equal to

a. marginal revenue minus marginal cost.

b. total revenue minus the explicit cost of producing goods and services.

c. total revenue minus the opportunity cost of producing goods and services.

d. average revenue minus the average cost of producing the last unit of a good or service.

7. Economic profit

a. will never exceed the accounting profit.

b. is most often equal to accounting profit

c. is always at least as large as accounting profit.

d. is a less complete measure of profitability than accounting profit

8. Which of the following expressions is correct?

a. accounting profit = total revenue - explicit costs

b. economic profit = total revenue - implicit costs

c. economic profit = total revenue - explicit costs

d. Both a and b are correct

Scenario 13-2:

Zach took $400,000 out of the bank and used it to start his new cookie business. The bank account pays 3% interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50. Also during the first year, the cookie business incurred costs that required outlays of money amounting to $9,000.

9. Zach's accounting profit for the year was

10. Zach's economic profit for the year was

Scenario 14-1:

As part of an estate settlement, Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per

11. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit?

15) Economic profit equals total revenue minus A) the cost of resources bought in the market. B) the implicit rental rate. C) the cost of resources owned by the firm. D) the cost of resources supplied by the owner. E) the opportunity cost of production.

32) Economic profit equals total revenue minus A) the cost of resources bought in the market. B) the implicit rental rate. C) the opportunity cost of production. D) the cost of resources supplied by the owner. E) the cost of resources owned by the firm.

EC120 Chapter 13: Chpt 13 Notes

EC120 Full Course Notes

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