Download What is the relationship between economic and accounting profit

1. What is the relationship between economic and accounting profit?
a. Economic profit is equal to accounting profit.
b. Economic profit is greater than accounting profit.
c. Economic profit is less than accounting profit.
d. Economic profit may be equal to or less than accounting profit.
e. Economic profit may be equal to or greater than accounting profit.
2. The difference between accounting and economic profit is:
a. caused by confusion over tax laws
b. the value of owned resources in their next best alternative use
c. the result of superior training received by accountants
d. proportionately very small for owner-managed firms
e. e. a decreasing function of interest rates
f.
3. Economic profits may result from:
a. innovation
b. risk taking
c. exploiting market inefficiencies
d. all the above
e. a and b
4. The demand for personal computers has been estimated to be Q = 500,000 – 700P +
200I - 500S. Assume that per capita income I is $13,000 and the average price of
software S is $400.When the price of personal computers is P = $3,000, the price
elasticity of demand is:
a. –2.625
b. –7.0
c. –1.0
d. –21.0
e. –4.25
5. The demand for space heaters is Q = 250 – P + 2COOL, where COOL is the absolute
value of the difference between the average overnight low temperature and 40°F.
Assume that the average overnight low is 0°F. When the price of space heaters is P =
$30, the price elasticity of demand is:
a. –0.1
b. –1.0
c. –0.66
d. –1.5
e. –6.6
6. The demand for textbooks is Q = 200 – P + 25U – 50Pbeer. Assume that the
unemployment rate U is 8 and the price of beer Pbeeris $2. When the average price of
a textbook is P = $100, the price elasticity of demand is:
a. –1.0
b. –2.0
c. –0.5
d. –50
e. –5.0
7. Total revenue can be defined as:
a. average revenue multiplied by marginal revenue
b. average revenue divided by marginal revenue
c. average revenue multiplied by output
d. average revenue divided by output
e. marginal revenue divided by output
8. Along a linear demand curve, total revenue is maximized:
a. where the slope of a line from the origin to the demand curve is equal to the
elasticity
b. where the elasticity is –1
c. near the quantity axis intercept
d. near the price axis intercept
e. where the elasticity is 0
9. Marginal revenue can be defined in terms of price (P) and elasticity (η) as:
a. MR = P(η + 1/η)
b. P = MR(1/η)
c. MR = Pη
d. MR = P(1 + 1/η)
e. P = MR(1 – 1/η)
10. At the profit-maximizing level of output for the monopolist:
a. total revenue is equal to total cost
b. total costs are minimized
c. total revenue is maximized
d. marginal revenue is equal to marginal cost
e. average revenue is equal to average cost
11. For the Mickey Mice Company, the price elasticity of demand is −3, average cost is
$15, and marginal cost is $30. Mickey’s profit-maximizing price is:
a. $10.00
b. $20.00
c. $22.50
d. $30.00
e. $45.00
12. Cal’s Cab Company (CCC) has a taxi monopoly in WenKroy. The demand for taxi
services in WenKroy is given by Q = 1,500 − P. CCC’s costs are given by TC = 100
− Q2 + 5Q3. Its maximum monopoly profit is:
a. $0
b. $5,500
c. $6,600
d. $7,700
e. $9,900
13. To maximize profit, the firm must:
a. mark up average variable costs
b. mark up marginal costs
c. mark up average fixed costs
d. set the markup equal to −1/(η + 1)
e. b and d
14. If elasticity of demand is −2, marginal cost is $4, and average cost is $6, a profitmaximizing markup price is:
a. $4
b. $6
c. $8
d. $10
e. $12
15. If the profit-maximizing markup price is marginal cost times 2, the elasticity of
demand must be:
a. −0
b. −1/2
c. −1
d. −4/3
e. −2