The Costs of Production 3223
79.
Refer to Scenario 13-1. Suppose Korie purchases the factory using $200,000 of her own money
and $200,000
borrowed from a bank at an interest rate of 6 percent. What is Korie’s annual
opportunity cost of purchasing the
factory?
a. $3,000
b. $6,000
c. $15,000
d. $18,000
3224 The Costs of Production
Scenario 13-2
Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory
that costs $100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per
year.
80.
Refer to Scenario 13-2. Suppose Chelsea purchases the factory using her own money. What is
Chelsea’s annual implicit opportunity cost of purchasing the factory?
a. $2,000
b. $3,000
c. $4,500
d. $5,000
81.
Refer to Scenario 13-2. Suppose Chelsea purchases the factory using $50,000 of her own
money and $50,000
borrowed from a bank at an interest rate of 6 percent. What is Chelsea’s
annual opportunity cost of purchasing the
factory?
a. $2,000
b. $3,000
c. $4,500
d. $5,000
The Costs of Production 3225
Scenario 13-3
Kachina is a senior majoring in graphic design at Awesome University (AU). While she has been
attending college,
Kachina started a computer consulting business to help senior citizens learn
how to use their iPads. Kachina
charges $25 per hour for her consulting services. She also works
5 hours a week for the Economics Department to
maintain that department‘s Web page. The
Economics Department pays Kachina $20 per hour.
82.
Refer to Scenario 13–3. If Kachina can work additional hours at either job, what is the
opportunity cost if she
spends one hour reading a novel?
a.
$20
b.
$25
c.
$100
d.
$125
83.
Refer to Scenario 13-3. Which of the following statements is correct?
a.
Kachina should increase the number of hours she works for the Economics Department to
make her income
comparable to her consulting business income.
b.
Kachina cannot be maximizing her well-being if she continues to work for the Economics
Department.
c.
If Kachina chooses one hour at the beach with her friends rather than spend one more hour
with a consulting
client, the forgone income of $25 is considered a cost of the choice to go to
the beach.
d.
Both b) and c) are correct
3226 The Costs of Production
Scenario 13-4
Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He
withdraws $50,000
from his personal savings account. The interest rate on the loan is 8%, and the
interest rate on his savings account
is 2%.
84.
Refer to Scenario 13-4. Abdul’s explicit cost of capital is
a. $8,000.
b. $4,000.
c. $2,000.
d. $1,000.
85.
Refer to Scenario 13-4. Abdul’s implicit cost of capital is
a. $8,000.
b. $4,000.
c. $2,000.
d. $1,000.
86.
Refer to Scenario 13-5. Emily’s explicit cost of capital is
a. $2,000.
b. $4,000.
c. $12,000.
d. $14,000.
87.
Refer to Scenario 13-5. Emily’s implicit cost of capital is
a. $2,000.
b. $4,000.
c. $12,000.
d. $14,000.
88.
Refer to Scenario 13-5. Emily’s total opportunity cost of capital is
a. $2,000.
b. $4,000.
c. $12,000.
d. $14,000.
Scenario 13-6
Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing
consultant. As a
consultant, Ziva helps people organize their houses. Due to the popularity of her
home–organization services,
Farmer Ziva has more clients requesting her services than she has
time to help if she maintains her farming
business. Farmer Ziva charges $25 an hour for her
home-organization services. One spring day, Ziva spends 10
hours in her fields planting $130
worth of seeds on her farm. She expects that the seeds she planted will yield $300
worth of
lettuce.
89.
Refer to Scenario 13-6. What is the total opportunity cost of the day that Farmer Ziva spent in
the field planting
lettuce?
a.
$130
b.
$250
c.
$300
d.
$380
90.
Refer to Scenario 13-6. An economist would calculate Ziva’s total cost of farming to equal
a.
$130.
b. $250.
c. $300.
d. $380.
91.
Refer to Scenario 13-6. Ziva‘s accountant would calculate the total cost of farming to equal
a. $25.
b. $130.
c. $300.
d. $380.
92.
Refer to Scenario 13-6. Ziva‘s accounting profit from farming equals
a. $-80.
b. $130.
c. $170.
d. $260.
93.
Refer to Scenario 13-6. Ziva‘s economic profit from farming equals
a. $-130.
b. $-80.
c. $130.
d. $170.
The Costs of Production 3231
Scenario 13-7
Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax and
bookkeeping business
were $150,000, and her expenses for the business were $15,000. When she
started her tax and bookkeeping
business, Julia gave up her supplemental job doing in-home pet
sitting. She used to earn $10,000 per year from pet
sitting. Assume that she incurred no costs for
her pet sitting business.
94.
Refer to Scenario 13-7. Julia’s explicit costs are
a.
0.
b. $10,000.
c. $15,000.
d. $25,000.
95.
Refer to Scenario 13-7. Julia’s implicit costs are
a.
0.
b. $10,000.
c. $15,000.
d. $25,000.
96.
Refer to Scenario 13-7. Julia’s accounting profits are
a. $160,000.
b. $150,000.
c. $135,000.
d. $125,000.
97.
Refer to Scenario 13-7. Julia’s economic profits are
a. $160,000.
b. $150,000.
c. $135,000.
d. $125,000.
Scenario 13-8
Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons,
paper cups, and
labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03
for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300
glasses for $0.50 each.
98.
Refer to Scenario 13-8. What are Wanda’s explicit costs per glass?
a. $0.18
b. $0.10
c. $0.08
d. $0.02
99.
Refer to Scenario 13-8. What are Wanda’s implicit costs per glass?
a. $0.18
b. $0.10
c. $0.08
d. $0.02
100.
Refer to Scenario 13-8. What are Wanda’s total economic costs per glass?
a. $0.18
b. $0.10
c. $0.08
d. $0.02
101.
Refer to Scenario 13–8. What are Wanda’s total accounting profits?
a.
$150
b.
$126
c.
$96
d.
$24
102.
Refer to Scenario 13–8. What are Wanda’s total economic profits?
a.
$150
b.
$126
c.
$96
d.
$54
The Costs of Production 3235
Scenario 13-9
Ellie has been working for an engineering firm and earning an annual salary of $80,000. She
decides to open her
own engineering business. Her annual expenses will include $15,000 for
office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000
salary for a secretary/bookkeeper. Ellie will cover her start–up
expenses by cashing in a $20,000
certificate of deposit on which she was earning annual interest of $500.
103.
Refer to Scenario 13–9. Ellie‘s annual implicit costs will equal
a. $55,200.
b. $75,200.
c. $80,500.
d. $165,700.
104.
Refer to Scenario 13–9. Ellie’s annual accounting costs will equal
a. $55,200.
b. $75,200.
c. $80,500.
d. $165,700.
105.
Refer to Scenario 13–9. Ellie’s annual economic costs will equal
a. $55,200.
b. $75,200.
c. $80,500.
d. $135,700.
106.
Refer to Scenario 13-9. According to Ellie’s accountant, which of the following revenue totals
will yield her business $50,000 in profits?
a. $55,200
b. $105,200
c. $132,500
d. $185,700
107.
Refer to Scenario 13-9. According to an economist, which of the following revenue totals will
yield Ellie’s business $50,000 in economic profits?
a. $55,200
b. $100,200
c. $132,500
d. $185,700
The Costs of Production 3237
Scenario 13–10
Jessica makes photo frames. She spends $5 on the materials for each photo frame. She can
create one photo
frame in an hour. She earns $10 per hour at a part-time job at the local coffee
shop. She can sell a photo frame for $30 each.
108.
Refer to Scenario 13–10. An accountant would calculate the total cost for one photo frame to
be
a. $5.
b.
$10.
c.
$15.
d.
$25.
109.
Refer to Scenario 13–10. An economist would calculate the total cost for one photo frame to
be
a. $5.
b.
$10.
c.
$15.
d.
$25.
110.
Refer to Scenario 13–10. An accountant would calculate the total profit for one photo frame to
be
a. $10.
b.
$15.
c.
$20.
d.
$25.
111.
Refer to Scenario 13–10. An economist would calculate the total profit for one photo frame to
be
a. $10.
b.
$15.
c.
$20.
d.
$25.
The Costs of Production 3239
Scenario 13–11
Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in
30 minutes. He is
semi-retired but earns $8 per hour at the local hardware store. He can sell a
birdhouse for $20 each.
112.
Refer to Scenario 13–11. The explicit cost for one birdhouse is
a. $4.
b.
$5.
c.
$8.
d.
$9.
113.
Refer to Scenario 13–11. The implicit cost for one birdhouse is
a. $4.
b.
$5.
c.
$8.
d.
$9.
114.
Refer to Scenario 13–11. An accountant would calculate the total cost for one birdhouse to be
a. $5.
b.
$8.
c.
$9.
d.
$13.
115.
Refer to Scenario 13–11. An economist would calculate the total cost for one birdhouse to be
a. $5.
b.
$8.
c.
$9.
d.
$13.
116.
Refer to Scenario 13–11. An accountant would calculate the total profit for one birdhouse to
be
a. $7.
b.
$11.
c.
$12.
d.
$15.
117.
Refer to Scenario 13–11. An economist would calculate the total profit for one birdhouse to be
a. $7.
b.
$11.
c.
$12.
d.
$15.
Scenario 13–12
Ariana withdrew $400,000 out of her personal savings account and used it to start her new
Internet cafe. The
savings account pays 3 percent interest per year. During the first year of her
business, Ariana sold 2,000 cups of
coffee for $2.50 per cup and 4,000 hours of Internet time,
also at $2.50 per hour. During the first year, the business
made monetary outlays of $9,000. You
may assume that there is no opportunity cost to Ariana’s time.
118.
Refer to Scenario 13–12. Ariana’s accounting profit for the year was
a. $-394,000.
b. $-6,000.
c. $6,000.
d. $12,000.
119.
Refer to Scenario 13-12. Ariana’s economic profit for the year was
a. $-394,000.
b. $-6,000.
c. $3,000.
d. $6,000.
Scenario 13–13
Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie
jars is $90,000.
The annual explicit costs of the materials used to make the cookie jars are
$54,000.
120.
Refer to Scenario 13–13. Christine used $5,000 from her personal savings account to buy
pottery tools for her
business. The savings account paid 1% annual interest. What is Christine’s
annual opportunity cost of the financial
capital that she invested in her business?
a.
$5
b.
$50
c. $100
d. $200