1) Which of the following is an example of implicit cost?

A)Forgone rent on property owned by a firm

B)The value of time worked by the owner of a firm.
C)Wages and salaries paid to employees.
D)both a and b.

E)-

The correct answer is d

2) Joe owns a landscaping business and has received a pickup truck as a gift from his father, to
help him expand his business. In this case,

A)the opportunity cost of the truck is zero

B)the opportunity cost of the truck is not relevant for Joe's decisions to expand his business
using the truck
C)the opportunity cost of the truck is its current market value.
D)both a and b

E)none of the above

The correct answer is c

3) Which of the following statements is true?

A)Total cost includes the opportunity cost of the owner's resources

B)When economic profit is zero, accounting profit is necessarily zero
C)If accounting profit is positive, economic profit is always positive.

D)If economic profit is negative, accounting profit must also be negative.

E)None of the above statements is true.

The correct answer is a

4) When a firm earns negative economic profit,

A)the revenues generated cannot cover all the explicit costs and the
opportunity cost of using owner-supplied resources.
B)total revenue exceeds total cost.
C)accounting profits must also be negative.

D)managers will resist changes in use of resources used in the firm.

E)-

The correct answer is a

5) If the price of a complement increases, all else equal,

A)quantity demanded will increase.

B)quantity supplied will increase.
C)demand will increase
D)demand will decrease.

E)supply will decrease.

The correct answer is d

6) Which of the following would lead to an INCREASE in the demand for golf balls?

A)A decrease in the price of golf balls.

B)An increase in the price of golf clubs.
C)A decrease in the cost of producing golf balls
D)An increase in average household income when golf balls are a normal good.

E)none of the above

The correct answer is d

7) Which of the following will cause a change in quantity supplied?

A)Technological change.
B)A change in input prices.
C)A change in the market price of the good.
D)A change in the number of firms in the market
 E)both b and c

The correct answer is c

8) A radio manufacturer is experiencing theft problems at its warehouse and

has decided to hire security guards to reduce the thefts. The firm wants to
minimize the net cost of warehouse thefts.

Number of Security Guards Number of Radios Stolen Per Week

0 50
1 30
2 20
3 14
4 8
5 6

If each security guard is paid $200 a week and the cost of a stolen radio is $25,
how many security guards should the firm hire?

A)5
B)4
C)3
D)2

E)1

The correct answer is d

9) When the choice variable is a continuous variable, the decision rule for an unconstrained
maximization problem is:

A) If MB > MC, increase the activity

B)If MB > MC, decrease the activity.
C)Choose the activity so that MB = MC.
D)both a and c

E)both b and c

The correct answer is d

10) The next two questions refer to the following:

A clinic uses doctors and nurses optimally and is servicing the maximum number of patients
given a limited annual payroll. The last doctor hired treated 1200 extra patients in a year, while
the last nurse hired treated 600 extra patients in a year.
If doctors make Rs90,000 per year, what do nurses make per year?
 A)50,000 per year
B)45,000 per year
C)40,000 per year
D)35,000 per year

E)-

The correct answer is b

11) A firm can maximize profit (net benefit) by choosing to produce that level of output at which...

A)the additional revenue from the last unit sold is just a little more than the additional cost of
that unit.
B)total revenue equals total cost.
C)thedifference between the additional revenue from the last unit sold and the additional cost of
that unit is maximized.
D)the additional revenue from the last unit sold equals the additional cost of that unit.

E)-

The correct answer is d

12) How does the account rate affect the present value ofa stream of payments?
A)a higher discount rate reduces the present value
B)a higher discount rate increases the present value
C)discount rate affect future values , but not present values
D)the direction of the effect depends on the data

E)-

The correct answer is a

13) An annuity is defined as

A)a series of equal payments for a specified length of time
B)a series of unequal paymwents fora specified length of time
C)the value today of an amount , taking into consideration taht interest can be earned
D)the future value of an amount

E)-

The correct answer is a

14) Ann owns a small grocery stire in a busy section of los angeles . Her annual revenue is $ 200,000 and her total cost
( including her $30000 salary) is $ 180000 per year . A supermarket chain wants to hire her as its general manager for $
60000 per year . Ann's economic profit is
A)$20,000
B)$10,000
C)$60,000
 D)$40,000

E)-

The correct answer is b

15) A positive discount rate suggests that

A)people are inconsistent
B)time has value in economic analysis
C)no interest can be earned on money
D)both (b) and (c) are correct

E)-

The correct answer is b

16) If demand decreases while supply increases for a particular good:

A)its equilibrium price will increase while the quantity of the good produced and sold could
increase, decrease, or remain constant
B)its equilibrium price will decrease while the quantity of the good produced and sold could
increase, decrease, or remain constant.
C)the quantity of the good produced and sold will decrease while its equilibrium price could
increase, decrease, or remain constant
D)the quantity of the good produced and sold will increase while its equilibrium price could
increase, decrease or remain constant.

E)-

The correct answer is b

17) The supply curve expresses the relation between the quantity supplied and:

A)output price

B)energy prices.
C)wage rates.

D)
all of the above.

E)-

The correct answer is a

18) In the housing market, a rise in interest rates will

A)increase demand.
B)decrease demand.
 C)decrease the quantity demanded.
D)increase the quantity demanded.

E)-

The correct answer is b

19) Input demand is:

A)derived demand.
B)direct demand.
C)motivated by utility
D)unrelated to the profit motive.

E)-

The correct answer is a

20) Surplus is a condition of:

A)excess supply
B)rising demand.
C)market equilibrium
D)excess demand.

E)-

The correct answer is a