Midterm Exam Solution Essay

1533 Words Feb 15th, 2013 7 Pages
Name__________________ ID _______________________

Midterm Exam
MBA501

There are 25 multiple choice questions and each question is worth 3 points.

1) Until recently you worked as an accountant, earning $30,000 annually. Then you inherited a piece of commercial real estate bringing in $12,000 in rent annually. You decided to leave your job and operate a video rental store in the office space you inherited. At the end of the first year, your books showed total revenues of $60,000 and total costs of $30,000 for video purchases, utilities, taxes, and supplies. What is the total economic cost of operating the video store?
A. $60,000
B. $42,000
C. $30,000
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A. Fixed costs do not vary with output.
B. Sunk costs are those costs that are forever lost after they have been paid.
C. Fixed costs are always greater than sunk costs.
D. Fixed costs could be positive when sunk costs are zero.
Answer: C

21) You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. The profit-maximizing output for your firm is
A. 10.
B. 20.
C. 30.
D. 40.
Answer A

22) The above figure shows the cost curves for a competitive firm. If the market price is $15 per unit, the firm’s economic profit is A. $0. B. $4. C. $40. D. $160. Answer D

23) This question is a continuation on question 22). Which of the following statements is correct?
A. The firm is making a positive economic profit when price is below $10
B. The firm should shut down when price is below $10 but above $8.
C. The firm should shut down when price is below $8.
D. The firm should shut down when it is making a negative economic profit.
Answer C

24) A firm will shut down in the short run if A. its economic profit is negative.
B. total revenue from operating would not cover all costs.
C. total revenue from operating would not cover variable costs.
D. total revenue from operating would not cover fixed costs.
Answer: C

25) In a perfect competitive market, a firm’s supply

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