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Which of the following is an implicit cost of owning a business? (i) interest expense on existing business loans (ii) forgone savings account interest when personal money is invested in the business (iii) damaged or lost inventory

05 / 03 / 2018 Assignment

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Which of the following is an implicit cost of
owning a business?

(i) interest
expense on existing business loans

(ii) forgone
savings account interest when personal money is invested in the business

(iii) damaged
or lost inventory

a. (i)
only

b. (ii)
only

c. (i)
and (ii)

d. All
of the above are correct.

22. The amount of money that a wheat farmer could
have earned if he had planted barley instead of wheat is

a. an
explicit cost.

b. an
accounting cost

c. an
implicit cost.

d. forgone
accounting profit.

Use the following information to answer questions 23 and
24.

Joe
wants to start his own business. The business he wants to start will require
that he purchase a factory that costs $300,000. To finance this purchase, he
will use $100,000 of his own money, on which he has been earning 10 percent
interest. In addition, he will borrow $200,000, and he will pay 12 percent
interest on that loan.

23. For the first year of operation, what is the
explicit cost of purchasing the factory?

a. $12,000

b. $20,000

c. $24,000

d. $44,000

24. For the first year of operation, what is the
opportunity cost of purchasing the factory?

a. $10,000

b. $20,000

c. $24,000

d. $34,000

1

25. 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.

26. 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.

(i) total
revenue – (explicit costs + implicit costs).

(ii) total
revenue – opportunity costs.

(iii) accounting
profit + implicit costs.

a. (i)
only

b. (i)
and (ii)

c. (ii)
and (iii).

d. All
of the above are correct.

28. Accounting profit is equal to

(i) total
revenue – implicit costs.

(ii) total
revenue – opportunity costs.

(iii) economic
profit + implicit costs.

a. (i)
only

b. (iii)
only

c. (i)
and (ii)

d. None
of the above are correct.

29. Economic profit

a. will
never exceed 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.

30. To an economist, it is conceivable that the
objective that motivates an individual entrepreneur to start a business arises
from

a. an
innate love for the type of business that he or she starts.

b. a
desire to earn a profit.

c. an
altruistic desire to provide the world with a good product.

d. All
of the above are correct.


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