Quick Quiz


1	The owner's liability for business debts is:
		A)	limited in a partnership.
		B)	limited in a sole proprietorship.
		C)	unlimited for corporate shareholders.
		D)	unlimited in both sole proprietorships and partnerships.
		E)	unlimited in sole proprietorships, partnerships, and corporations.


2	Businesses maximize productive efficiency by:
		A)	producing the highest possible output.
		B)	producing a given output at the lowest possible cost.
		C)	producing the output level with the lowest possible cost.
		D)	always employing the same production methods even when resource prices change.
		E)	using the least number of resources.


3	Implicit costs:
		A)	are costs paid to those outside the business.
		B)	exclude normal profit.
		C)	represent the owner's opportunity cost of being in business.
		D)	are also known as "accounting costs" .
		E)	include a business's total revenue.


4	Which of the following statements is correct?
		A)	Implicit costs are found by adding explicit costs and economic costs.
		B)	Normal profit is the minimum return needed for an owner to stay in business.
		C)	Economic profit is found by subtracting explicit costs and normal profit from total revenue.
		D)	Economic profit is found by subtracting implicit costs from total revenue.
		E)	Economic profit is found by subtracting explicit costs from total revenue.


5	In the short run:
		A)	at least one cost is fixed.
		B)	all costs are fixed.
		C)	the level of output is fixed.
		D)	all costs are variable.
		E)	none of the above.


6	Marginal product:
		A)	changes less rapidly than average product.
		B)	is defined as the extra output produced by hiring another fixed input.
		C)	is defined as the extra output produced by hiring another worker.
		D)	shows the output produced per worker.
		E)	shows workers' total output.


7	Once diminishing marginal returns apply in a given production process:
		A)	total product begins to fall.
		B)	total product begins to be negative.
		C)	marginal product begins to be negative.
		D)	average product begins to rise.
		E)	marginal product begins to fall.


8	Average product is rising when:
		A)	it exceeds marginal product.
		B)	marginal product is falling.
		C)	marginal product is negative.
		D)	total product is falling.
		E)	it is less than marginal product.


9	Marginal cost:
		A)	is the extra cost of hiring one more worker.
		B)	falls once the law of diminishing marginal returns begins to apply.
		C)	is rising when marginal product is increasing.
		D)	is the extra cost of producing one more unit of output.
		E)	is the same as average cost.


10	Average cost:
		A)	is the sum of average fixed cost and average variable cost at every possible output level.
		B)	first rises, then falls, as output is increased.
		C)	applies only in the short run.
		D)	falls when it is below marginal cost.
		E)	applies only in the long run.


11	Which of the following is a factor leading to increasing returns to scale?
		A)	the difficulties that arise in managing large enterprises
		B)	the ability to repeat production methods exactly when adding new units of output
		C)	the division of labour possible at higher output levels
		D)	the limited supply of natural resources
		E)	none of the above


12	Which of the following statements is correct?
		A)	With increasing returns to scale, an expansion in all inputs raises output by a greater proportion.
		B)	Constant returns to scale are most common in primary industries.
		C)	Decreasing returns to scale are most prevalent in manufacturing industries.
		D)	The concept of returns to scale is applicable in the short run.
		E)	Increasing returns to scale are most often to be found in craft industries.


13	The long-run average cost curve:
		A)	is downward-sloping in the case of decreasing returns to scale.
		B)	usually incorporates an initial range of decreasing returns to scale.
		C)	usually incorporates a final range of increasing returns to scale.
		D)	shows the minimum short-run average cost at each output level.
		E)	is upward-sloping in the case of increasing returns to scale.


14	John Kenneth Galbraith argues that:
		A)	the interests of corporate managers and shareholders are usually the same.
		B)	corporate managers are interested in maximizing a corporation's profit.
		C)	shareholders do not have effective control of most large corporations.
		D)	shareholders are interested in maximizing a corporation's sales revenue.
		E)	the interests of shareholders and employees are the same.


15	When comparing accounting profit and economic profit:
		A)	economic profit is greater than accounting profit because economic costs exceed accounting costs.
		B)	economic profit is less than accounting profit because economic costs exceed accounting costs.
		C)	economic profit is greater than accounting profit because accounting costs exceed economic costs.
		D)	economic profit is less than accounting profit because accounting costs exceed economic costs.
		E)	economic profit and accounting profit are identical.

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