Chapter 1: MANAGERS, PROFITS, AND MARKETS
Multiple Choice
1-1 Economic theory is a valuable tool for business decision making because it
a. identifies for managers the essential information for making a decision.
b. assumes away the problem.
c. creates a realistic, complex model of the business firm.
d. provides an easy solution to complex business problems.
Answer: a
Difficulty: 01 Easy
Topic: The Economic Way of Thinking about Business Practices and Strategy
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 01-01
1-2 Economic profit
a. is a theoretical measure of a firm’s performance and has little value in real world decision
making.
b. can be calculated by subtracting implicit costs of using owner-supplied resources from
the firm’s total revenue.
c. is negative when total costs exceed total revenues.
d. is generally larger than accounting profit.
Answer: c
Difficulty: 01 Easy
Topic: The Economic Way of Thinking about Business Practices and Strategy
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 01-02
1-3 Economic profit is the difference between
a. total revenue and the opportunity cost of all of the resources used in production.
b. total revenue and the implicit costs of using owner-supplied resources.
c. accounting profit and the opportunity cost of the market-supplied resources used by the
firm.
d. accounting profit and explicit costs.
Answer: a
Difficulty: 01 Easy
Topic: The Economic Way of Thinking about Business Practices and Strategy
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 01-02
1-4 When economic profit is positive,
a. total revenue exceeds total economic cost.
b. the firm’s owners have successfully solved the principle-agent problem.
c. the firm’s owners experience a decrease in their wealth.
d. foreign companies experience loss of market share
Answer: a
Difficulty: 01 Easy
1
Multiple Choice
1-1 Economic theory is a valuable tool for business decision making because it
a. identifies for managers the essential information for making a decision.
b. assumes away the problem.
c. creates a realistic, complex model of the business firm.
d. provides an easy solution to complex business problems.
Answer: a
Difficulty: 01 Easy
Topic: The Economic Way of Thinking about Business Practices and Strategy
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 01-01
1-2 Economic profit
a. is a theoretical measure of a firm’s performance and has little value in real world decision
making.
b. can be calculated by subtracting implicit costs of using owner-supplied resources from
the firm’s total revenue.
c. is negative when total costs exceed total revenues.
d. is generally larger than accounting profit.
Answer: c
Difficulty: 01 Easy
Topic: The Economic Way of Thinking about Business Practices and Strategy
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 01-02
1-3 Economic profit is the difference between
a. total revenue and the opportunity cost of all of the resources used in production.
b. total revenue and the implicit costs of using owner-supplied resources.
c. accounting profit and the opportunity cost of the market-supplied resources used by the
firm.
d. accounting profit and explicit costs.
Answer: a
Difficulty: 01 Easy
Topic: The Economic Way of Thinking about Business Practices and Strategy
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 01-02
1-4 When economic profit is positive,
a. total revenue exceeds total economic cost.
b. the firm’s owners have successfully solved the principle-agent problem.
c. the firm’s owners experience a decrease in their wealth.
d. foreign companies experience loss of market share
Answer: a
Difficulty: 01 Easy
1
