3
University of Bahrain
College of Business Administration
Department of Economics and Finance
Econ 140 - Microeconomics
Problem Set 6 (Chapter 9)
AlShawa
1. A firm's market constraints are the conditions under which it can
a. convert inputs into outputs.
b. buy its inputs and sell its outputs.
c. issue stock.
d. produce the factors of production.
2. A firm's economic profit is its total revenue minus its
a. explicit costs.
b. implicit costs.
c. opportunity costs.
d. accounting costs.
3. A firm that is maximizing its profits
a. is economically efficient and technologically efficient.
b. is economically efficient but might not be technologically efficient.
c. is technologically efficient but might not be economically efficient.
d. might be neither economically efficient nor technologically efficient.
4 If economic profits are equal to zero then
a. its profits as measured by accountants must also be equal to zero.
b. its profits as measured by accountants must be less than zero.
c. normal profits are being earned.
d. below normal profits are being earned.
5 A firm uses labour and capital. To tell if the firm is technologically efficient, you
a. need to know the cost of labour but not the cost of capital.
b. need to know the cost of capital but not the cost of labour.
c. need to know the cost of labour and the cost of capital.
d. do not need to know the cost of labour or the cost of capital.
6. You quit your job as an insurance agent and open your own cold store. If your profits as measured by your accountant are greater than zero, then
a. you made a good move because you are earning above normal profits.
b. your economic profits must be greater than zero.
c. your implicit costs must be zero.
d. there is not enough information to determine your economic profit, if any.
7. A freelance writer, who could work for a newspaper at $25,000 a year, instead works for himself for $40,000 a year. His only business expenses are $1,000 for writing materials and $12,000 for rent. His economic profit from working as a freelance writer is
a. $2,000.
b. $15,000.
c. $25,000.
d. $28,000.
8. Your best friend has just approached you about investing $5,000 in a new business he is starting. You currently have $10,000 in your savings account that is earning 10% interest. What is the opportunity cost of investing $5,000 of your savings in friend’s business?
a. $5,000.
b. $1,000.
c. the interest earnings forgone on your $5,000 investment.
d. the interest earnings forgone by not investing your entire savings of $10,000.
9. Sheila’s Sports Shop is a very popular sporting goods store, which has yearly revenue of $600,000. Sheila runs the business herself. Her alternative employment options are to be a college swimming coach for $50,000 per year or a construction worker for $40,000 per year. Sheila spends $230,000 purchasing goods for resale to her customers. She also has four employees, who each earn $25,000 per year. Sheila owns the building that her Sports Shop is housed in - she remodelled a house that she owns and that she could have rented out for $20,000 per year instead. Sheila’s economic profit is equal to
a. $160,000 per year.
b. $200,000 per year.
c. $250,000 per year.
d. $270,000 per year.
10. Which of the following is part of a firm’s explicit costs?
I. wages
II. utility costs
III. interest on a bank loan
IV. interest forgone on funds used to buy capital equipment
a. I and II
b. III and IV
c. I, II and III
d. I, III and IV
11. A firm incurs an implicit cost when it
a. uses labour.
b. pays for its utilities, such as electric power.
c. uses its capital equipment.
d. pays interest on a loan to a bank.
12. Firm A can produce a unit of output with 10 hours of labour and 5 units of material. Firm B can produce a unit of output with 5 hours of labour and 10 units of material. Firm C can produce a unit of output with 10 hours of labour and 10 units of material. If the prices of labour and material are $10 per hour and $5 per unit, which of these firms is economically efficient?
a. Firm A only.
b. Firm B only.
c. Firm C only.
d. Firms A and B could both be economically efficient.
13. Under oligopoly, there are _____ firms selling products that are _____.
a. many; either identical or different
b. few; either identical or different
c. many; different
d. few; identical
14. Monopolistic competition and monopoly are ______market types in that firms in ______.
a. similar; both market types have products that are identical to those of their competitors.
b. similar; both market types have many competitors.
c. different; monopoly are protected by barriers to entry.
d. different; monopolistic competition have only a few competitors.
15. Batelco and MTC Vodafone are in a(n)
a. perfectly competitive market.
b. monopolistically competitive market.
c. oligopolistic market.
d. monopoly market.