Costs of Production: Solutions



In Brief

This page includes solutions to the set of questions related to the Costs of Production.
This helps learners to ensure their learning on aspects of economics in general but also cost of productions in particular.

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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