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1

High or Low economic rent and how would you expect this?

Bob has a highly specialized medical skill that is in great demand. His level of economic rent would be _____ because

a. highly specialized means there are few substitutes, supply is inelastic, and the skill is in great demand.

b. the supply curve for the factor is perfectly elastic.

c. specific resources can be replicated exactly.

d. all of the above

high
a.

2

High or Low economic rent and how would you expect this?

sally has never attended school. she is 24 years old and is an internationally known supermodel. her level of economic rent would be ______ because

a. she would likely be willing to work for less.

b. the supply curve for the factor is perfectly elastic.

c. her specific resources can be replicated easily.

d. none of the above.

high
d.

3

tim is a high school teacher and sells insurance part time. his level of economic rent would be ____ because

a. the supply curve for a factor is perfectly inelastic.

b. he would be willing to work for less.

c. his wage is likely close to his opportunity cost.

d. all of the above

low
c.

4

economic rent is

the amount paid for a resource over and above its opportunity cost.

5

with respect to the allocation of ressources, which statement is ture about economic rent?

a. it is hard to determine whether resources are being allocated efficiently since salaries are so high.

b. economic rent is not related to the allocation of resources.

c. economic rent leads to inefficiencies.

d. economic rent allocates resources to their highest valued use.

d.

6

why do sports figures get economic rent?

a. their special talents cannot be replicated exactly.

b. because of the way accounting profits are calculated.

c. the present value calculation determines the person's salary

d. the legal forms of business dictate that this happen.

a.

7

a business organization that is owned by many

a. is a survivor-ship

b. is a partnership

c. is a corporation

d. is a proprietorship

c.

8

business organizations that are easy to form

proprietorships and partnerships

9

corporations are subject to______, but sole proprietorships and partnerships ______ double taxation

double taxation
do not face

10

after graduation you face a choice. one option is to work for a multinational consulting firm and earn a starting salary of $40,000. the other option is to use $7000 in saving to start your own consulting firm. you could earn an interest return of 7% on your savings. you choose to start you own consulting firm. at the end of the first year, you add up all of you expenses and revenues. you total includes $9000 in rent, $900 in office supplies, $20000 for office staff, and $4500 in telephone expenses.

explicit costs include all costs for which direct payments are made: rent, office supplies, staff salaries, and telephone. what is the total explicit cost?

34400

11

after graduation you face a choice. one option is to work for a multinational consulting firm and earn a starting salary of $40,000. the other option is to use $7000 in saving to start your own consulting firm. you could earn an interest return of 7% on your savings. you choose to start you own consulting firm. at the end of the first year, you add up all of you expenses and revenues. you total includes $9000 in rent, $900 in office supplies, $20000 for office staff, and $4500 in telephone expenses.

implicit costs include opportunity costs: foregone wages and foregone interest payments

40490

12

after graduation you face a choice. one option is to work for a multinational consulting firm and earn a starting salary of $40,000. the other option is to use $7000 in saving to start your own consulting firm. you could earn an interest return of 7% on your savings. you choose to start you own consulting firm. at the end of the first year, you add up all of you expenses and revenues. you total includes $9000 in rent, $900 in office supplies, $20000 for office staff, and $4500 in telephone expenses.

suppose that you have now operated your consulting firm for a year. at the end of the first year, your total revenues are $92000. what is your accounting profit?
what is your economic profit?

57600
17110

13

the owner of webcity is trying to decide whether to remain a proprietorship or to incorporate. suppose that the corporate tax rate on profits is 40 percent and the personal income tax rate is 50 percent. for simplicity, assume that all corporate profits (after corporate taxes are paid) are distributed as dividends in the year they are earned and taht such dividends are subject to tax at the personal income tax rate.

if the owner of webcity expects to earn $132000 in before tax profits this year, regardless of whether the firm is a proprietorship or a corporation, which method of organization should be chosen?

proprietorship

14

the owner of webcity is trying to decide whether to remain a proprietorship or to incorporate. suppose that the corporate tax rate on profits is 40 percent and the personal income tax rate is 50 percent. for simplicity, assume that all corporate profits (after corporate taxes are paid) are distributed as dividends in the year they are earned and taht such dividends are subject to tax at the personal income tax rate.

what is the dollar value of the after tax advantage of this form of organization?

26400