Principles of Microeconomics: MCQ

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Exercise 1.

Multiple choice questions
1. Economists normally assume that the goal of a firm is to a.| maximize its total revenue.|
b.| maximize its profit.|
c.| minimize its explicit costs.|
d.| minimize its total cost.|

2. Trevor’s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Trevor’s Tire Company’s total costs are a.| $7,500.|

b.| $25,000.|
c.| $32,500.|
d.| $67,500.|

3. When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a.| diminishing labor.|

b.| diminishing output.|
c.| diminishing marginal product.|
d.| negative marginal product.|

Exercise 2.

1. What do we include in a company’s opportunity cost?
Implicit and Explicit cost

2. Can accounting profit be negative and economic profit positive? Why? No because Economic profit is less compared to Accounting profit

3. What is the meaning of a negative economic profit?
It means resources or investments are not yielding the expected return, it’s an opportunity cost.

4. Consider a firm’s owner. Use the following information to calculate the accounting profit and the economic profit.

Sales or total revenues $5,000
Rent unearned due to the use of the building to produce $900 Employee expenses (wages)$1,600
Raw material expenses$800
Value of owner’s labor in the best other alternative $1,600

Economic Profit = 5,000 – (1,600 + 900 + 800 + 1600) = 100 Accounting Profit = 5,000 – (900+1,600+800) = 1,700

Exercise 3.

Read the article p.47
Explain in your own word how a country can increase its stock of capital. How public action can interact with firm investment decision?

Write one paragraph.

A company can increase its stock of capital by...
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