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Principles of Microeconomics, 12e (Case/Fair/Oster)
Chapter 7 The Production Process: The Behavior of Profit-Maximizing Firms
7.1 The Behavior of Profit-Maximizing Firms
1) Total revenue minus total cost is equal to
A) the rate of return.
B) marginal revenue.
C) profit.
D) net cost.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Definition
Learning Outcome: Micro-9
Refer to the information provided in Figure 7.1 below to answer the following question(s).
Figure 7.1
2) Refer to Figure 7.1. This corn producer produces 100 bushels of corn and sells each bushel at $5. The
cost of producing each bushel is $2. This corn producer's total revenue is ________ and profit is ________.
A) $200; $300
B) $300; $200
C) $500; $200
D) $500; $300
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
2
3) Refer to Figure 7.1. This corn producer earns a total revenue of $900. Each bushel of corn is sold for $5.
This corn producer must be selling ________ bushels of corn.
A) 180
B) 450
C) 900
D) 4,500
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
4) Refer to Figure 7.1. A corn producer's profit is $200 and is producing 100 bushels of corn. Then he must
have a cost per bushel of
A) $1.
B) $2.
C) $3.
D) $4.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
5) Refer to Figure 7.1. A corn producer produces 80 bushels of corn and sells each bushel at $5. The cost of
producing each unit bushel is $2. This corn producer's total revenue is ________ and profit if ________.
A) $160; $0
B) $240; $80
C) $400; $240
D) $400; $160
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
6) Refer to Figure 7.1. A corn producer's total revenue is $1,000. If she sells each bushel of corn for $5, she
must be selling ________ bushels of corn.
A) 200
B) 450
C) 900
D) 4,500
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
Learning Outcome: Micro-9
3
7) Refer to Figure 7.1. A corn producer's profit is $1,500 and it is producing 500 bushels of output. Then
he must have a cost per bushel of
A) $1.
B) $2.
C) $3.
D) $4.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
8) The Wax Works sells 400 candles at a price of $10 per candle. The Wax Works' total costs for producing
400 candles are $500. The Wax Works' economic profit is
A) -$100.
B) $3,500.
C) $4,500.
D) indeterminate from this information.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
9) The Wax Works sells 400 candles at a price of $6 per candle. The Wax Works' total costs for producing
400 candles are $2,500. The Wax Works' economic profit is
A) -$100.
B) $0.
C) $2,400.
D) $2,500.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
10) Perfectly competitive firms must make all of the following decisions except
A) how much output to supply.
B) which production technology to use.
C) how much of each input to demand.
D) what price to charge for their output.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
4
11) Economic costs
A) include both a normal rate of return on investment and the opportunity cost of each factor of
production.
B) are equal to the direct costs of hiring all factors of production.
C) are the opportunity cost of each factor of production minus any interest charges paid on borrowed
funds.
D) are equal to total revenue minus accounting profit.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Definition
Learning Outcome: Micro-9
12) The Sweet Success Bakery sells 400 cakes at a price of $10 per cake. Its total economic costs for
producing 400 cakes are $500. The Sweet Success Bakery's economic profits are
A) $100.
B) $3,500.
C) $4,500.
D) indeterminate from this information.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
13) The Oh So Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit costs for producing
300 muffins are $250. The Oh So Humble Bakery's economic profits are
A) $35.
B) $50.
C) $250.
D) indeterminate from this information.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
5
14) The Oh So Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit costs for producing
300 muffins are $250. If the bakery is earning a normal rate of return, then implicit costs must be
A) $50.
B) $100.
C) $250.
D) $350.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
15) If economic profit is zero, a firm
A) earns a negative rate of return.
B) will leave the industry.
C) earns a positive but below normal rate of return.
D) earns exactly a normal rate of return.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
16) You own a building that has four possible uses: a cafe, a craft store, a hardware store, and a bookstore.
The value of the building in each use is $2,000; $3,000; $4,000; and $5,000, respectively. You decide to
open a hardware store. The opportunity cost of using this building for a hardware store is
A) $2,000, the value if the building is used as a cafe.
B) $3,000, the value if the building is used as a craft store.
C) $10,000, the sum of the values if the building is used for a cafe, a craft store, or a bookstore.
D) $5,000, the value if you rented the building to someone else to use as a bookstore.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Conceptual
AACSB: Analytical Thinking
Learning Outcome: Micro-9
6
Refer to Scenario 7.1 below to answer the question(s) that follow.
SCENARIO 7.1: You are the owner and only employee of a company that writes computer software that
is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for
equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own
capital that could pay you a return of $40,000 a year.
17) Refer to Scenario 7.1. During the year your economic costs were
A) $40,000.
B) $60,000.
C) $100,000.
D) $130,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
18) Refer to Scenario 7.1. A yearly normal return for your computer software firm would be
A) $20,000.
B) $40,000.
C) $60,000.
D) $100,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
19) Refer to Scenario 7.1. Your accounting profit last year was
A) $10,000.
B) $30,000.
C) $50,000.
D) $60,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
7
20) Refer to Scenario 7.1. Your economic profit last year was
A) -$40,000.
B) -$10,000.
C) $10,000.
D) $30,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
Refer to Scenario 7.2 below to answer the question(s) that follow.
SCENARIO 7.2: You are the owner and only employee of a company that sets odds for sporting events.
Last year you earned a total revenue of $100,000. Your costs for rent and supplies were $50,000. To start
this business you invested an amount of your own capital that could pay you a return of $20,000 a year.
21) Refer to Scenario 7.2. During the year your economic costs were
A) $70,000.
B) $60,000.
C) $50,000.
D) $20,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
22) Refer to Scenario 7.2. A yearly normal return for your company is
A) $20,000.
B) $40,000.
C) $60,000.
D) $100,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
8
23) Refer to Scenario 7.2. Your accounting profit last year was
A) $10,000.
B) $30,000.
C) $50,000.
D) $60,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
24) Refer to Scenario 7.2. Your economic profit last year was
A) -$40,000.
B) -$10,000.
C) $10,000.
D) $30,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
Refer to Scenario 7.3 below to answer the question(s) that follow.
SCENARIO 7.3: Upon graduating with an accounting degree, you open your own accounting firm of
which you are the sole employee. To start the firm you passed on a job offer with a large accounting firm
that offered you a salary of $60,000 annually. Last year you earned a total revenue of $100,000. Rent and
supplies last year were $50,000.
25) Refer to Scenario 7.3. Your annual economic costs are
A) $0.
B) $50,000.
C) $60,000.
D) $110,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
9
26) Refer to Scenario 7.3. Your annual economic profit is
A) -$10,000.
B) $40,000.
C) $50,000.
D) $100,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
27) Refer to Scenario 7.3. Your annual operating profit is
A) -$10,000.
B) $40,000.
C) $50,000.
D) $100,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
28) There are 100 dog kennels in Atlanta. An economist studying the pricing behavior of dog kennels tells
you that she is limiting her analysis to a time period that does not allow for any new dog kennels to enter
the industry or for any established dog kennels to leave the industry. The time period this economist
referred to is the
A) market period.
B) industry run.
C) long run.
D) short run.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
29) In the long run,
A) a firm can shut down, but it cannot exit the industry.
B) there are no fixed factors of production.
C) a firm can vary all inputs, but it cannot change the mix of inputs it uses.
D) all firms must make economic profits.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
10
30) In the short run, a firm
A) has at least one fixed factor of production.
B) can enter an industry where positive profits are being earned.
C) can exit an industry, and all of its factors of production are variable.
D) both B and C are correct.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
31) Profit is equal to
A) marginal revenue minus marginal cost.
B) total revenue divided by total cost.
C) total revenue minus total cost.
D) total revenue divided by marginal revenue.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Definition
Learning Outcome: Micro-9
32) The Wax Works sells 500 candles at a price of $10 per candle. The Wax Works' total economic costs for
producing 500 candles are $2,000. The Wax Works' economic profit is
A) $2,000.
B) $3,000.
C) $5,000.
D) indeterminate from this information.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
33) The Wax Works sells 500 candles at a price of $5 per candle. The Wax Works' total economic costs for
producing 500 candles are $3,000. The Wax Works' economic profit is
A) -$3,000.
B) -$500.
C) $2,500.
D) $3,000.
Topic: The Behavior of Profit-Maximizing Firms
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-9
