Seminar 1: Intro to Managerial Econ Flashcards
True or False: When a firm’s costs exceed its total revenue, there is a positive profit.
False
True or False: Opportunity costs are directly linked with a business activity
False
True or False: Zero economic profit means the investor is able to redeem the opportunity costs.
True
The cost of producing ice cream is $1.20 per unit. The market sale is targeted as 1,000 units
per month. What should be the market price per ice cream in order to earn a revenue amount
of $2,500 per month?
a. $5
b. $4
c. $3.5
d. $3
e. $2.5
$2.5
You would plug in the answer choices to give you the 2,500
1,000 * 2.5 = 2,500
The cost of producing ice cream is $1.20 per unit. The market sale is targeted as 1,000 units
per month. What will be the monthly profit if the revenue is $2,200 per month?
a. $800
b. $1,000
c. $1,200
d. $1,300
e. $1,500
$1,000
Profit = TR - TC
1000 = 2,200 - 1,200
The cost of producing ice cream is $1.20 per unit. The market sale is targeted as 1,000 units
per month. If the market production amount drops to 800 units per month and the market
price is $1, then what will be the monthly profit/loss?
a. Profit of $260
b. Loss of $40
c. Profit of $40
d. Loss of $160
e. Profit of $80
Loss of $160
New Profit
TR = 800 (1) = 800
TC = 1.20 (800) = 960
800 - 960 = -160
Opportunity costs are a part of:
Economic Costs
The level of production where a firm earns zero economic profit is referred to as:
The break-even point
The table below shows a business firm’s list of expenditures. The machineries are bought in
the current year. The owners also participate in the production process. The revenue earning
after one year is $196,000.
Cost of machineries: $8,000
Labor wages (monthly): $4,000
Electricity charges
(monthly): $2,000
Rent of land (monthly): $1,500
Rent paid for capital
(monthly): $3,000
Opportunity cost of the
owners’ work (monthly): $7,000
What is the sunk cost?
$8,000
A sunk cost is when a cost has been incurred and cannot be recovered. In this case the machinery
The table below shows a business firm’s list of expenditures. The machineries are bought in
the current year. The owners also participate in the production process. The revenue earning
after one year is $196,000.
Make sure to multiply ever number by 12*
Cost of machineries: $8,000
*$8,000
Labor wages (monthly): $4,000 *$48,000
Electricity charges
(monthly): $2,000 *$24,000
Rent of land (monthly): $1,500 *$18,000
Rent paid for capital
(monthly): $3,000 *$36,000
Opportunity cost of the
owners’ work (monthly): $7,000 *$84,000
What is the annual accounting cost?
$134,000
Annual accounting costs are costs made such as rent, utility bills, labor, and machinery in this case
The table below shows a business firm’s list of expenditures. The machineries are bought in
the current year. The owners also participate in the production process. The revenue earning
after one year is $196,000.
Make sure to multiply ever number by 12*
Cost of machineries: $8,000
*$8,000
Labor wages (monthly): $4,000 *$48,000
Electricity charges
(monthly): $2,000 *$24,000
Rent of land (monthly): $1,500 *$18,000
Rent paid for capital
(monthly): $3,000 *$36,000
Opportunity cost of the
owners’ work (monthly): $7,000 *$84,000
What is the annual economic cost?
$218,000
Annual accounting cost + opportunity cost = annual economic cost
134,000 + 84,000 = 218,000
The table below shows a business firm’s list of expenditures. The machineries are bought in
the current year. The owners also participate in the production process. The revenue earning
after one year is $196,000.
Make sure to multiply ever number by 12*
Cost of machineries: $8,000
*$8,000
Labor wages (monthly): $4,000 *$48,000
Electricity charges
(monthly): $2,000 *$24,000
Rent of land (monthly): $1,500 *$18,000
Rent paid for capital
(monthly): $3,000 *$36,000
Opportunity cost of the
owners’ work (monthly): $7,000 *$84,000
What is the annual economic profit?
-$22,000
TR - Annual Economic Cost = Annual Economic Profit
196,000 - 218,000 = -22,000
