7. Which of the following statements about the relationship between economic cos

Question

7. Which of the following statements about the relationship between economic costs and accounting costs is true?
a. Accounting costs are always less than or equal to economic costs
b. Accounting costs must equal economic costs (by definition)
c. Accounting costs are always greater than economic costs
d. Accounting costs are equal to or greater than economic costs

. Bill is an accountant for a small machine shop. He has been asked to calculate the shop’s total fixed cost. Which of the following will get Bill the correct answer?
a. C and B
b. Determining what the shop would pay if its output were zero
c. Subtracting total variable cost from total cost
d. Multiplying average total cost by quantity produced



Suzy is considering opening a restaurant. To do so, she would have to quit her current job which pays $20,000 a year and use her own car which she currently leases out to her brother for $2,000 a year. Her expenses at the restaurant would be $60,000 for food, $4000 for electricity, and $10,000 for hiring a staff. Based on these data, what are Suzy’s implicit costs?
a. $20,000
b. $22,000
c. $92,000
d. $96,000



Which statement about the Total Variable Cost curve is true?
a. It begins at the origin and increases before decreasing again
b. It begins at the origin and is always increasing
c. It begins at the origin and increases but at a steadily decreasing rate
d. Is downward sloping since it declines as output levels increase

Explanation / Answer

answers are a.) Accounting costs are always less than or equal to economic costs c.) Subtracting total variable cost from total cost b.) $22,000 a.) It begins at the origin and increases before decreasing again

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