Question

Answer all the questions (2pts each question) 1. Lauren runs a chili restaurant in San Francisco. Her total revenue last year was $110,000. The rent on her restaurant was $48,000, her labor costs were $42,000, and her materials, food and other variable costs were $20,000. Lauren could have worked as a biologist and earned $50,000 per year. An economist calculates her implicit costs as A) $150,000. B) $63,000. C) $50,000. D) $110,000. 2. Which of the following is an example of an implicit cost? A) rent on a building B) the cost of fertilizer for a farmer C) the economic depreciation of capital equipment the business owns D) the cost of fuel and materials. 3. Which of the following are correct statements about implicit and explicit costs? i. Normal profit is an implicit cost. ii. Economic depreciation is an explicit cost. iii. Wages are an explicit cost. A) ii and iii B) i and iii C) iii only D) i, ii, and iii 4. Economic profit equals total revenue minus total A) explicit costs. B) opportunity costs. C) implicit costs. D) accounting costs. 5. Jennifer owns a pig farm near Salina, Kansas. Last year she earned $39,000 in total revenue while incurring $38,000 in explicit costs. She could have earned $27,000 as a teacher in Salina. These are all her revenue and costs. Therefore Jennifer earned an A) accounting profit of $1,000 but incurred an economic loss of $26,000. accounting profit of $1,000 but incurred an economic loss of $65.000. C) accounting profit of $1,000 but incurred an economic loss of $38,000. D) economic profit of $1,000.

Answer 1

1) Implicit costs = opportunity costs

= 50000

option(C)

2) Implicit costs = the economic depreciation

option(C)

3) i and iii are correct

option(B)

4) Economic profit = total revenue - total opportunity costs

option(B)

5) Accounting profit = 39000-38000 = 1000

Economic profit = 1000-27000 = -26000

option (A)