# Practice Test-1 on Costs of Production: Solutions

Question 1: If a firm produces nothing, which of the following costs will be zero ............
1. fixed cost
2. total cost
3. variable cost
4. opportunity cost
5. none of the above
Answer: 3

Question 2: Total cost is the ................
1. quantity of output minus the quantity of inputs used to make a good.
2. market value of the inputs a firm uses in production.
3. fixed cost less variable cost.
4. amount a firm receives for the sale of its output. .
Answer: 2

Question 3: Profit is defined as ........
1. total revenue minus total cost.
2. average revenue minus average total cost.
3. marginal revenue minus marginal cost.
4. net revenue minus depreciation.
Answer: 1

Question 4: If you sell 100 sandwiches at \$4 each. Your total revenues are ........
1. \$500
2. \$200
3. \$300
4. \$400
Answer: 4

Question 5: Mary used to work as a waitress, earning \$10,000 per year. She gave up that job to open a new coffe shop in her city. In calculating the economic profit of her cafeshop, the \$10,000 income that she gave up is counted as part of the coffe shop's ...............
1. explicit costs.
2. marginal costs.
3. opportunity costs
4. total revenue
Answer: 3

Question 6: The value of a business owner's time is an example of ..............
1. explicit costs.
2. marginal costs.
3. total revenue
4. fixed costs
5. opportunity costs
Answer: 5

Question 7: Which of the following statements is correct?.
1. Economists consider opportunity costs to be included in a firm's total revenues.
2. Economists consider opportunity costs to be included in a firm's costs of production.
3. Opportunity costs equal explicit minus implicit costs.
4. All of the above are correct.
Answer: 2

Question 8: Explicit costs .................
1. enter into the accountant's measurement of a firm's profit.
2. enter into the economist's measurement of a firm's profit.
3. do not require an outlay of money by the firm.
4. Both a and b are correct.
5. Both b and c are correct.
Answer: 4

Question 9: A difference between explicit and implicit costs is that
1. implicit costs are greater than explicit costs.
2. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
3. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.
4. explicit costs are greater than implicit costs
Answer: 2

Question 10: Joe gives Mathematics lessons for \$10 per hour. He also grows seeds of strawberries plants, which he arranges and sells at the local farmer's market. One day he spends 6 hours planting \$65 worth of seeds in his garden. Once the seeds have grown into flowers, he can sell them for \$170 at the farmer's market. Which of the following statements is correct regarding Joe's profits from selling strawberries?
1. Joe's accounting profits are \$120, and his economic profits are \$50
2. Joe's accounting profits are \$110, and his economic profits are \$45
3. Joe's accounting profits are \$105, and his economic profits are \$45
4. Joe's accounting profits are \$115, and his economic profits are \$55
5. none of the above
Answer: 3
He paid \$65 for seeds and sold the grown strawberries for \$170. Hence the accounting profit = \$170 − \$65 = \$105.
However, he could have earned \$60 giving math lessons for the 6 hours he spent planting seeds.
Therefore, economic profits = \$170 − \$65 − \$60 = \$45

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Date of last modification: 2019