Chapter 12 Test Bank KEY
1. Economists assume the central goal of any business is to:
2. In business, the “bottom line” refers to the very last line of a(n):
3. The amount that a firm receives from the sale of goods and services is called:
4. Total revenue can be defined as:
5. Total cost can be defined as:
6. Total revenue is:
7. Total cost includes:
8. Total cost includes:
9. An example of a one-time expense for a shoe factory would be buying:
10. An example of an ongoing expense for a toy company would be buying:
11. Which of the following would be considered an ongoing expense?
12. Which of the following would be considered a one-time expense?
13. A college student is thinking about running an ice-cream truck over the summer. Which of the
following would likely be included in the total cost of the business?
14. A college student is thinking about running an ice-cream truck over the summer. What would
economists say is the student’s main objective?
15. A college student is thinking about running an ice-cream truck over the summer. Which of the
following would likely be a one-time expense of the business?
16. A college student is thinking about running an ice-cream truck over the summer. Which of the
following would likely be an ongoing expense of the business?
17. Profit is the:
18. Total revenue is:
19. Suppose Sam’s Shoe Co. makes only one kind of shoe, which sells for $50 a pair. If they sold
500,000 pairs of shoes, then their total revenue would be:
20. Suppose Sam’s Shoe Co. makes only one kind of shoe, which sells for $50 a pair. If they sold
500,000 pairs of shoes, and had a total cost of $1,000,000, what was the company’s profit?
21. Suppose Chip’s Chips produces bags of potato chips that sell for $3 a bag. If they sold 12,000 bags
and incurred total costs of $30,000, what was the company’s profit?
22. Suppose Chip’s Chips produces bags of potato chips that sell for $3 a bag. What was the total
revenue for Chip’s Chips?
23. Suppose Larry’s Lariats produced 25,000 lassos and sold each for $10. What was the profit for this
company?
24. Suppose Larry’s Lariats produced 25,000 lassos and sold each for $10. What was the total revenue
for the company?
25. Suppose Bev’s Bags makes large handbags and small handbags. They sold 70,000 large bags for
$45 each and 25,000 small bags for $15 each. What was the total revenue for this company?
26. Suppose Bev’s Bags makes large handbags and small handbags. They sold 70,000 large bags for
$45 each and 25,000 small bags for $15 each. If the company had total costs of $2,000,000, what was
the profit for this company?
27. Fixed costs are:
28. Variable costs are:
29. Suppose Sam’s Shoe Co. makes one kind of shoe. An example of a fixed cost for this company would
be:
30. Suppose Sam’s Shoe Co. makes one kind of shoe. An example of a variable cost for this company
would be:
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31. Suppose Chip’s Chips produces bags of potato chips. An example of a fixed cost for this company
would be:
32. Suppose Chip’s Chips produces bags of potato chips. An example of a variable cost for this firm
would be:
33. Suppose Larry’s Lariats produces lassos, and uses nine feet of rope to make each lasso. The rope is
put into a machine that automatically cuts it to the right length, then seals the ends to prevent fraying. The
rope is then hand tied, dipped, and wound before being placed in a packaging machine to prepare it for
retail sale. The total costs for this company would include:
34. Suppose Larry’s Lariats produces lassos in a factory, and uses nine feet of rope to make each lasso.
The rope is put into a machine that automatically cuts it to the right length, then seals the ends to prevent
fraying. The rope is then hand tied, dipped, and wound before being placed in a packaging machine to
prepare it for retail sale. Which of the following would be considered a variable cost for this company?
35. Suppose Larry’s Lariats produces lassos in a factory, and uses nine feet of rope to make each lasso.
The rope is put into a machine that automatically cuts it to the right length, then seals the ends to prevent
fraying. The rope is then hand tied, dipped, and wound before being placed in a packaging machine to
prepare it for retail sale. Which of the following would be considered a fixed cost for this company?
36. Suppose Bev’s Bags makes two kinds of handbags-large and small. Bev rents an industrial space
where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra
needles, thread and buttons, and labels. Bev can produce three bags an hour, regardless of the size of
bag. Which of the following would be considered a fixed cost of this company?
37. Suppose Bev’s Bags makes two kinds of handbags-large and small. Bev rents an industrial space
where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra
needles, thread and buttons, and labels. Which of the following would be considered a variable cost of
this company?
38. Suppose Bev’s Bags makes two kinds of handbags-large and small. Bev rents an industrial space
where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra
needles, thread and buttons, and labels. If Bev were to produce no bags, what would her variable cost
include?
39. If a firm produces nothing, then its:
40. If a firm stops production, then its:
41. If a firm increases production, then its:
42. If a firm decreases production, then its:
43. If a firm stops production, then its:
44. If a firm decreases production, then its:
45. Suppose Bev’s Bags makes two kinds of handbags-large and small. Bev rents an industrial space
where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra
needles, thread and buttons, and labels. If Bev were to produce no bags, which of the following is true
regarding Bev’s costs?
46. Suppose Larry’s Lariats produces lassos in a factory, and uses nine feet of rope to make each lasso.
The rope is put into a machine that automatically cuts it to the right length, then seals the ends to prevent
fraying. The rope is then hand tied, dipped, and wound before being placed in a packaging machine to
prepare it for retail sale. If Larry were to decrease the production of lassos, which of the following is true
regarding the company’s costs?
47. If a sandwich shop produces zero sandwiches, which of the following costs will it still incur?
48. Explicit costs include:
49. Costs that require a firm to spend money are considered:
50. Explicit costs are costs that:
51. Implicit costs are costs that:
52. Davy’s Doggie Daycare rents a warehouse and field for $2,000 a month to house its boarding
pooches. Farmer Fred owns the property, he used to use it for farming and made $3,000 a month, but
has since retired. What is the cost of the warehouse and field to Davy?
53. Mika’s Manicures leases a space in the local mall for $4,500 a month. For this business, this expense
would be considered an:
54. Mika borrows $100,000 to start up her own beauty shop. She pays 5 percent interest on her loan. In
order to account for all costs of her business, Mika must not forget:
55. Mika withdraws $100,000 from her trust fund to start up her own manicure business. The trust fund
earns 4 percent interest. In order to properly account for all costs of her business, Mika must not forget:
56. Tina withdraws $20,000 from her money market account to start up her own house cleaning business.
Over that time, the account would have earned 3 percent interest. In order to properly account for all
costs of her business, Tina must not forget:
57. Doug wants to start up his own business, and needs $25,000 to get it off the ground. He can either
withdraw it from his savings account, where he currently earns 3 percent, or he can take out a loan for
$25,000 and pay 5 percent interest. Doug should compare:
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58. Sanford wants to start up his own business, and needs $50,000 to get it off the ground. He can either
withdraw it from his savings account, where he currently earns 2 percent, or he can take out a loan for
$50,000 and pay 2 percent interest. Sanford should compare:
59. Mike wants to open his own repair shop, and is considering using his savings of $30,000 to get it
started. He is currently earning 3 percent interest on his savings. His friend Bob calls him and asks to
borrow $30,000 to start up a bagel shop; Bob offers to pay him 5 percent interest if he loans him the
money. If Mike were to use the money to open his own repair shop, how can he accurately account for his
costs?
60. Imagine Tom’s annual salary as an assistant store manager is $30,000, he owns a building that rents
for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding
to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle
repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running
the business, and earns revenues of $50,000. What are Tom’s accounting profits?
61. Imagine Tom’s annual salary as an assistant store manager is $30,000, he owns a building that rents
for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding
to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle
repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running
the business, and earns revenues of $50,000. Has Tom made the best decision?
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62. Imagine Tom’s annual salary as an assistant store manager is $30,000, he owns a building that rents
for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding
to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle
repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running
the business, and earns revenues of $50,000. What are Tom’s economic profits?
63. Imagine Tom’s annual salary as an assistant store manager is $30,000, he owns a building that rents
for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding
to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle
repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running
the business, and earns revenues of $50,000. Tom should:
64. Imagine Tom’s annual salary as an assistant store manager is $30,000, he owns a building that rents
for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding
to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle
repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running
the business, and earns revenues of $50,000. Which of the following statements is true?
65. Suppose Winston’s annual salary as an accountant is $60,000, and his financial assets generate
$4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his
financial assets to establish a consulting business, which he runs out of his home. To run the business,
he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of
$150,000. What are Winston’s accounting profits?
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66. Suppose Winston’s annual salary as an accountant is $60,000, and his financial assets generate
$4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his
financial assets to establish a consulting business, which he runs out of his home. To run the business,
he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of
$150,000. What are Winston’s economic profits?
67. Suppose Winston’s annual salary as an accountant is $60,000, and his financial assets generate
$4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his
financial assets to establish a consulting business, which he runs out of his home. To run the business,
he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of
$150,000. What are Winston’s implicit costs?
68. Suppose Winston’s annual salary as an accountant is $60,000, and his financial assets generate
$4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his
financial assets to establish a consulting business, which he runs out of his home. To run the business,
he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of
$150,000. What are Winston’s explicit costs?
69. Suppose Winston’s annual salary as an accountant is $60,000, and his financial assets generate
$4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his
financial assets to establish a consulting business, which he runs out of his home. To run the business,
he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of
$150,000. What costs would be considered when calculating accounting profit?
70. Suppose Winston’s annual salary as an accountant is $60,000, and his financial assets generate
$4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his
financial assets to establish a consulting business, which he runs out of his home. To run the business,
he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of
$150,000. What costs would be considered when calculating economic profit?
71. In general, economic profits are:
72. The larger the implicit costs of a business:
73. When accounting profits are positive, economic profits could be:
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74. When accounting profits are negative, economic profits could be:
75. When economic profits are zero, accounting profits are most likely:
76. When economic profits are positive, accounting profits could be:
77. When economic profits are negative, accounting profits could be:
78. When accounting profits are zero, which of the following is most likely to be true?