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Economics Chapter 5: Production and Cost

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Economics Chapter 5: Production and Cost

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Questions and Answers

What is the primary goal of an entrepreneur in starting a business?

To minimize losses

To reduce costs

To earn profits (correct)

To maximize revenue

What is the key difference between an economist's view of costs and an accountant's view of costs?

Economists consider revenue, while accountants consider costs

Economists only consider explicit costs, while accountants consider both explicit and implicit costs

Economists consider opportunity costs, while accountants consider accounting costs

Economists consider both explicit and implicit costs, while accountants only consider explicit costs (correct)

What is the purpose of the chapter on the theory of production and cost?

To examine the production costs of a firm and develop the economic concepts of production (correct)

To develop models of short-run costs

To calculate total accounting profits

To discuss the implications of long-run average total cost curve for strategic management

What is the concept of opportunity cost in the context of business decisions?

The profits that could have been made in the next best business opportunity Signup and view all the answers

What is the relationship between total revenue and total cost in calculating profits?

Total revenue minus total cost equals total accounting profits Signup and view all the answers

What is the key difference between accounting profits and economic profits?

Economic profits include opportunity costs, while accounting profits do not. Signup and view all the answers

In which time period are all costs fixed costs?

Market period Signup and view all the answers

What is the purpose of financial ratios in accounting?

To compare the firm's performance to similarly situated companies Signup and view all the answers

What is the main difference between the short-run and the long-run?

The type of costs observed Signup and view all the answers

Why do economists typically begin their analysis of costs with the short-run?

Because the market period is of little interest in economic analysis Signup and view all the answers