Multiple-Choice Questions
1. A business owner makes 1,000 items a day.
Each day he or she contributes eight hours to produce those items. If hired, elsewhere he or she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the firm's accounting profit for the month equals
a. $300,000.
b. $60,000.
c. $450,000.
d. $240,000.

2. A business owner makes 1,000 items a day.
Each day he or she contributes eight hours to produce those items. If hired, elsewhere he or she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the economic profit for the month equals:
a. $300,000.
b. $60,000.
c. $450,000.
d. $240,000.

3. If a firm is earning negative economic profits, it implies
a. that the firm's accounting profits are zero.
b. that the firm's accounting profits are positive.
c. that the firm's accounting profits are negative.
d. that more information is needed to determine accounting profits.

4. Opportunity costs arise due to
a. resource scarcity.
b. interest rates.
c. limited wants.
d. unlimited scarcity.

5. After graduating from college, Jim had three choices, listed in order of preference:
(1) Move to Florida from Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer for a minor league in Philadelphia.
His opportunity cost of moving to Florida includes
a. The benefits he could have received from playing soccer.
b. The income he could have earned at the car dealership.
c. Both a and b
d. Cannot be determined from the given information

6. Economic Value Added helps firms to avoid the hidden-cost fallacy
a. By ignoring the opportunity costs to using capital.
b. By differentiating between sunk and fixed costs.
c. By taking all capital costs into account including the cost of equity.
d. None of the above

7. The fixed-cost fallacy occurs when
a. A firm considers irrelevant costs.
b. A firm ignores relevant costs.
c. A firm considers overhead or depreciation costs to make short-run decisions.
d. Both a and c

8. Mr. D's Barbeque of Pickwick, TN produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D's fixed costs are $50,000. The average variable cost per slab is a constant $2. The average total cost per slab then is
a. $7.
b. $2.
c. $5.
d. Impossible to determine

9. All the following are examples of variable costs, except
a. labor costs.
b. Cost of raw materials.
c. Accounting fees.
d. Electricity cost.

10. The U.S. government bought 112,000 acres of land in southeastern Colorado in 1968 for $17,500,000. The cost of using this land today exclusively for the reintroduction of the black-tailed prairie dog
a. Is zero, because they already own the land.
b. Is zero, because the land represents a sunk cost.
c. Is equal to the market value of the land.
d. Is equal to the total dollar value the land would yield if used for farming and ranching.