PRACTICE

1. If Danielle sells 300 wrist bands for $0.50 each, her total revenues are
a. $150.
b. $299.50.
c. $300.
d. $600.
ANSWER: a

2. If Kevin’s children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total
revenues are
a. $100.
b. $199.50.
c. $200.
d. $400.
ANSWER: a

3. Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be
a. $1,000 if she sells 100 candles.
b. $500 if she sells 25 candles. (25 x20)
c. $20 regardless of how many candles she sells.
d. $200 if she sells 5 candles.
ANSWER: b

4. The Carolina Christmas Tree Corporation grows and sells 500 Christmas trees. The average cost of production
per tree is $50. Each tree sells for a price of $65. The Carolina Christmas Tree Corporation’s total revenues are
a. $7,500.
b. $25,000.
c. $32,500.
d. $67,500.
ANSWER: c

5. The Three Amigo’s company produced and sold 500 dog beds. The average cost of production per dog bed was
$50. Each dog be sold for a price of $65. The Three Amigo’s total costs are
a. $7,500.
b. $25,000.
c. $32,500.
d. $67,500.
ANSWER: B

6. Trevor’s Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire
sold for a price of $65. Trevor’s Tire Company’s total profits are
a. $7,500.
b. $25,000.
c. $32,500.
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 d. $67,500.
ANSWER: a

7. Stick Storage manufactures and sells computer flash drives. Last year it sold 2 million flash drives at a price of
$10 each. For last year, the firm's
a. accounting profit was $20 million.
b. economic profit was $20 million.
c. total revenue was $20 million.
d. explicit costs was $20 million.
ANSWER: c

8. Shelley’s Salsa produces and sells organic salsa. Last year it sold 3 million tubs of salsa at a price of $3 per tub.
For last year, the firm's
a. accounting profit was $9 million.
b. economic profit was $9 million.
c. total revenue was $9 million.
d. explicit costs were $9 million.
ANSWER: c

9. A dairy produces and sells organic milk. Last year it sold 500,000 gallons of milk at a price of $7 per gallon. For
last year, the firm's
a. total revenue was $3.5 million.
b. economic profit was $3.5 million.
c. accounting profit was $3.5 million.
d. explicit costs were $3.5 million.
ANSWER: a

10. Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per
pound. His average total cost of catching shrimp is $3 per pound. Bubba’s annual total revenue is
a. $8,000.
b. $12,000.
c. $20,000.
d. $32,000.
ANSWER: c

11. Ryan sells 200 plastic ball point pens at $0.50 each. His total costs are $25. His profits are
a. $25.
b. $75.
c. $100.
d. $175.
ANSWER: b

Table A
Measures of Cost for Very Brady Poster Factory
Quantity Variable Total Fixed
of Posters Costs Costs Costs
0 $10

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1 $1
2 $3 $13
3 $6 $16
4 $10
5 $25
6 $21 $10

12. Refer to Table A. The average fixed cost of producing 5 posters is

a. $1.
b. $2.
c. $3.
d. $5.
ANSWER: b

13. Refer to Table A. The average variable cost of producing 4 posters is

a. $2.00.
b. $2.50.
c. $3.33.
d. $5.00.
ANSWER: b

14. Refer to Table A. The total cost of producing 1 poster is

a. $1.
b. $10.
c. $11.
d. $22.

15. Refer to Table A. The marginal cost of producing the 6th poster is
a. $1.00.
b. $3.50.
c. $5.00.
d. $6.00.
ANSWER: d

16. Refer to Table A. What is the variable cost of producing 0 posters?

a. $0
b. $1
c. $10
d. $100
ANSWER: a

17. Refer to Table A. What is the marginal cost of producing the 1st poster?
a. $1
b. $10
c. $11
d. It can't be determined from the information given.

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ANSWER: a

18. Refer to Table A. What is the variable cost of producing 5 posters?

a. $13
b. $14
c. $15
d. It can't be determined from the information given.
ANSWER: c

Scenario B
Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The
annual explicit costs of the materials used to make the cookie jars are $54,000.
19. Refer to Scenario B. Christine used $5,000 from her personal savings account to buy pottery tools for her business.
The savings account paid 1% annual interest. What is Christine’s annual opportunity cost of the financial capital that she
invested in her business?
a. $5
b. $50
c. $100
d. $200
ANSWER: b

20. Refer to Scenario B. Christine could earn $6,000 per year preparing taxes. In calculating the economic profit of her
cookie jar business, the $6,000 that Christine gives up is counted as part of her business’s
a. total revenue.
b. explicit costs.
c. implicit costs.
d. marginal costs.
ANSWER: c

21. Refer to Scenario B. Christine used $5,000 from her personal savings account to buy pottery tools for her business.
The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual
accounting profit of her cookie jar business?
a. $36,000
b. $35,950
c. $30,000
d. $29,950
ANSWER: a

22. Refer to Scenario B. Christine used $5,000 from her personal savings account to buy pottery tools for her business.
The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual
economic profit of her cookie jar business?
a. $36,000
b. $35,950
c. $30,000
d. $29,950
ANSWER: d

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23. Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job
offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest.
He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase
supplies and earned $50,000 in revenue during his first year. What are Sebastian's implicit costs from running his own
business?
a. $30,600
b. $55,600
c. $50,000
d. $75,600
ANSWER: a

24. Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job
offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest.
He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase
supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct?
a. Sebastian's total explicit costs are $15,400.
b. Sebastian's total implicit costs are $55,600.
c. Sebastian's accounting profit is $35,000.
d. Sebastian's economic profit is $4,600.
ANSWER: a

25. Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job
offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian’s savings account paid 3 percent
interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to
purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct?
a. Sebastian's economic profit is $4,000, and his accounting profit is $34,600.
b. Sebastian's economic profit is $4,600, and his accounting profit is $35,000.
c. Sebastian's economic profit is -$16,000, and his accounting profit is $34,600.
d. Sebastian's economic profit is -$16,000, and his accounting profit is $14,600.
ANSWER: a

Table C
Wooden Chair Factory
Output
Number Number (chairs Marginal
of of produced Product of Cost of Cost of Total
Workers Machines per hour) Labor Workers Machines Cost
1 2 5
2 2 10
3 2 20
4 2 35
5 2 55
6 2 70
7 2 80

26. Refer to Table C. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per
day regardless of the number of chairs produced. If the factory produces at a rate of 70 chairs per hour and operates 8
hours per day, what is the factory’s total labor cost per day?
a. $72
b. $112
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 c. $576
d. $616
ANSWER: c

27. Refer to Table C. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per
day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if
the factory operates 8 hours per day?
a. $480
b. $576
c. $520
d. $616
ANSWER: c

28. Refer to Table C. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per
day regardless of the number of chairs produced. Assume the number of machines does not change. If the factory
produces at a rate of 78 chairs per hour, what is the total machine cost per day?
a. $20
b. $40
c. $240
d. We are unable to determine total machine costs from the information given.
ANSWER: b

29. Refer to Table C. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per
day regardless of the number of chairs produced. If the factory produces at a rate of 35 chairs per hour, what is the total
labor cost per hour?
a. $40
b. $48
c. $384
d. $424
ANSWER: b

30. Refer to Table C. Assume the Wooden Chair Factory currently employs 5 workers. What is the marginal product of
labor when the factory adds a 6th worker?
a. 5 chairs per hour
b. 15 chairs per hour
c. 25 chairs per hour
d. 70 chairs per hour
ANSWER: b

31. Refer to Table C. Assume the Wooden Chair Factory currently employs 2 workers. What is the marginal product of
labor when the factory adds a 3rd worker?
a. 5 chairs per hour
b. 10 chairs per hour
c. 20 chairs per hour
d. 25 chairs per hour
ANSWER: b

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32. Refer to Table C. The Wooden Chair Factory experiences diminishing marginal product of labor with the addition of
which worker?
a. the third worker
b. the fourth worker
c. the fifth worker
d. the sixth worker
ANSWER: d

Table D
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity Total Revenue Total Cost
0 $0 $3
1 $7 $5
2 $14 $9
3 $21 $15
4 $28 $23
5 $35 $33
6 $42 $45
7 $49 $59

33. Refer to Table D. The marginal cost of producing the 4th unit is
a. $7.
b. $8.
c. $10.
d. $23.
ANSWER: b

34. Refer to Table D. At which level of production will the firm maximize profit?
a. 3 units
b. 4 units
c. 5 units
d. 6 units
ANSWER: a

35. Refer to Table D. If the firm produces the profit-maximizing level of production, how much profit will the firm earn?
a. $2
b. $4
c. $6
d. $8
ANSWER: c

36. Refer to Table D. Which level of production in the table has the lowest average variable cost?
a. 1 unit
b. 2 units
c. 3 units
d. 4 units
ANSWER: b

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37. Refer to Table D. At which level of output in the table is average variable cost equal to $6?
a. 2 units
b. 3 units
c. 4 units
d. 5 units
ANSWER: d

38. Refer to Table D. This firm should continue to produce and sell units as long as the marginal cost of production is
less than or equal to
a. $3.
b. $5.
c. $7.
d. $9.
ANSWER: c

Table E
Suppose that a firm in a competitive market faces the following prices and costs:
Total
Price Quantity
Cost
$6 0 $4
$6 1 $6
$6 2 $9
$6 3 $13
$6 4 $18
$6 5 $24
$6 6 $31

39. Refer to Table E. In order to maximize profits, the firm should stop producing after it makes the
a. first unit.
b. second unit.
c. fourth unit.
d. fifth unit.
ANSWER: d

40. Refer to Table E. Marginal revenue equals marginal cost when the firm produces
a. 2 units.
b. 3 units.
c. 4 units.
d. 5 units.
ANSWER: d

41. Refer to Table E. The marginal revenue from producing the 3rd unit equals
(i) $6.
(ii) the price.
(iii) the marginal cost.
a. (i) only
b. (i) and (ii) only
c. (iii) only

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 d. (i), (ii), and (iii)
ANSWER: b

42. Refer to Table E. The marginal revenue from producing the 5th unit equals
(i) $6.
(ii) the price.
(iii) the marginal cost.
a. (i) only
b. (i) and (ii) only
c. (iii) only
d. (i), (ii), and (iii)
ANSWER: d

43. Refer to Table E. If the firm is producing 3 units of output, it should produce
a. more units of output because its marginal revenue is greater than its marginal cost.
b. fewer units of output because its marginal revenue is less than its marginal cost.
c. more units of output because its marginal revenue is less than its marginal cost.
d. fewer units of output because its marginal revenue is greater than its marginal cost.
ANSWER: a

Table F
Bill’s Birdhouses
COSTS REVENUES
Quantity Total Marginal Quantity Total Marginal
Produced Cost Cost Demanded Price Revenue Revenue
0 $0 -- 0 $80 --
1 $50 1 $80
2 $102 2 $80
3 $157 3 $80
4 $217 4 $80
5 $285 5 $80
6 $365 6 $80
7 $462 7 $80
8 $582 8 $80

44. Refer to Table F. What is the marginal cost of the 5th unit?
a. $55
b. $60
c. $68
d. $80
ANSWER: c

45. Refer to Table F. What is the marginal cost of the 8th unit?
a. $0
b. $72.75
c. $120
d. $502
ANSWER: c

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46. Refer to Table F. What is the total revenue from selling 4 units?
a. $80
b. $137
c. $320
d. $480
ANSWER: c

47. Refer to Table F. What is the total revenue from selling 7 units?
a. $80
b. $382
c. $540
d. $560
ANSWER: d

48. Refer to Table F. What is the marginal revenue from selling the 1st unit?
a. $30
b. $50
c. $80
d. $160
ANSWER: c

49. Refer to Table F. What is the marginal revenue from selling the 5th unit?
a. $12
b. $68
c. $80
d. $480
ANSWER: c

50. Refer to Table F. What is the average revenue when 4 units are sold?
a. $0
b. $68
c. $80
d. $400
ANSWER: c

51. Refer to Table F. At what quantity does Bill maximize profits?

a. 3
b. 6
c. 7
d. 8
ANSWER: b

52. Refer to Table F. What is Bill's economic profit at the profit-maximizing output level?
a. $25
b. $75
c. $115
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 d. $225
ANSWER: c

Table G
Diana’s Dress Emporium
COSTS REVENUES
Quantity Total Marginal Quantity Total Marginal
Produced Cost Cost Demanded Price Revenue Revenue
0 $100 -- 0 $120 --
1 $150 1 $120
2 $202 2 $120
3 $257 3 $120
4 $317 4 $120
5 $385 5 $120
6 $465 6 $120
7 $562 7 $120
8 $682 8 $120

53. Refer to Table G. What is the marginal cost of the 1st unit?
a. $50
b. $75
c. $80
d. $150
ANSWER: a

54. Refer to Table G. What is the marginal cost of the 8th unit?
a. $0
b. $100
c. $120
d. $140
ANSWER: c

55. Refer to Table G. In order to maximize profits, how many units should Diana’s Dress Emporium produce?
a. 5
b. 6
c. 7
d. 8
ANSWER: d

56. Refer to Table G. What is Diana’s economic profit at the profit maximizing point?
a. $78
b. $243
c. $278
d. $375
ANSWER: c

Table H
The following table presents cost and revenue information for Bob’s bakery production and sales.

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 Marginal Total Marginal
Quantity Total Cost Cost Price Revenue Revenue
0 $5.00 --- $3.25 ---
1 $5.50 $3.25
2 $6.50 $3.25
3 $8.00 $3.25
4 $10.00 $3.25
5 $12.50 $3.25
6 $15.50 $3.25
7 $19.00 $3.25
8 $23.00 $3.25

57. Refer to Table H. What is Bob’s total fixed cost?

a. $0
b. $3
c. $5
d. $9
ANSWER: c

58. Refer to Table H. What is the total revenue from selling 5 units?
a. $2.50
b. $3.25
c. $12.50
d. $16.25
ANSWER: d

59. Refer to Table H. What is the marginal revenue of the 4th unit?
a. $2.00
b. $3.25
c. $10.00
d. $13.00
ANSWER: b

60. Refer to Table H. At what quantity will Bob maximize his profit?
a. 5 units
b. 6 units
c. 7 units
d. 8 units
ANSWER: b

61. Refer to Table H. When Bob produces and sells the profit-maximizing quantity, how much profit does he earn?
a. $0.25
b. $2.75
c. $4.00
d. $5.25
ANSWER: c

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62. Refer to Table H. Suppose that due to a decrease in the market demand for bread the market price of bread drops to
$2.75 per loaf. At this new price, what is Bob’s profit-maximizing quantity?
a. 5 units
b. 6 units
c. 7 units
d. 8 units
ANSWER: a

63. Refer to Table H. Suppose that due to a decrease in the market demand for bread the market price of bread drops to
$2.75. At this new price, if Bob produces and sells the profit-maximizing quantity, how much profit will he earn?
a. $0.25
b. $1.25
c. $2.25
d. The firm will lose $6.25.
ANSWER: b

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