5. A firm’s economic profit is ______________.


a. Usually lower than its normal profit

b. Profit over and above that which it needs to compensate for

the time and other resources the owner supplies to the

business

c. A cost of production

d. A signal to the firm that it is producing too much output


6. The economic function of profits and losses is to ______________.


a. Bring about a more equal distribution of income

b. Signal that resources should be reallocated

c. Eliminate small firms and reduce competition

d. Tell government which industries need to be subsidized


7. Suppose a firms total economic cost in producing 1000 aluminum

baseball bats is 10, 000 pesos. These bats are then sold by the firm for

12, 000 pesos. Thus the firm _______________.


a. Is necessarily using the least-cost production technique

because it is realizing an economic profit

b. Normal profit is 2000

c. Economic profit is 2000

d. Economic reason for the aluminum bat industry to expand or

contract


8. Suppose industry A is realizing substantial economic profit. Which of

the following best describes the adjustment process that would bring

about a new equilibrium? Firms will ________________.


a. Leave the industry, output will fall and product price will rise

b. Enter the industry, output will rise and product price will rise

c. Leave the industry, output will rise and product price will fall

d. Enter the industry, output will rise and product price will fall

9. The most efficient combination of resources in producing any output is

the combination that _______________.


a. Comes closest to using the same quantities of land, labor,

capital and entrepreneurial ability

b. Can be obtained for the smallest money outlay

c. Uses the smallest total quantity of all resource

d. Conserve most on the use of labor


10. Which of the following best describes the guiding function of competitive prices?


a. Profitable industries contract and unprofitable industries

expand

b. The market system will always generate economic profits for
firms that use the least costly production technology

c. The market system can negotiate reallocations of resources
that are appropriate to changes in consumer tastes,
technology and resource supplies

d. When prices are in equilibrium, product shortages or
surpluses cannot occur​