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True and False Problems

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True/False

1. The basic economic decision rule is to undertake an action only when the marginal benefit of an action exceeds its marginal cost.

2. If caviar prices doubled, while sales of caviar rose 20 percent, this example would definitely refute the law of demand.

3. In 1998, Hurricane Mitch not only destroyed homes in Central America, but also damaged around 40 percent of the bean crop. The damage of this crop is best represented by a shift to the right in the supply curve.

4. If the price of a good goes up by 5 percent and the quantity demanded falls by 15 percent, the price elasticity of demand is 1/3.

5. Jane is maximizing utility when consuming two goods, coke and pizza. If the marginal utility from the last piece of pizza Jane consumed is 100 and the marginal utility of the last coke consumed is 75 and pizza cost $1.00 apiece, a coke must cost 75 cents.

6. The law of diminishing marginal productivity states that as more and more of a variable input is added to an existing fixed input, the additional output one gets from that additional input is going to rise.

7. An economically efficient method of production is a method that produces a given level of output at the lowest possible cost.

8. The supply of labor is generally considered to be upward sloping because the opportunity cost of work will increase as wages increase.

9. All real-world Lorenz curves are above the 45-degree line because income is always distributed unequally in the real world.

10. Income inequality decreased in the United States from 1929 to 1970 and increased thereafter.

11. Private property rights are not essential to market economies.

12. The economic well being of the U.S. is mostly attributed to the use of markets and the institutions supporting the development of such markets.

13. One of the conditions for a perfect competitive market to exist is that there must be a large number of firms producing identical products.

14. A monopoly can exist when competitors other than the one currently producing cannot enter the market.

15. Firms facing a great deal of competitive pressure tend to be the least efficient.

16. The Clayton Antitrust Act declared that tie-in contracts, in which buyers agreed to deal exclusively with one seller and not to buy from competitors, were legal.

17. An excise tax on alcohol causes the supply of alcohol to decrease and the price of alcohol to increase.

18. Even though the seller pays a tax, buyers and sellers usually share the full amount of the tax.

19. When government uses the judgment by structure criterion, a firm is considered a monopoly if it controls a significant segment of the market.

20. The Sherman Antitrust Act explicitly defined the conditions under which a firm would be judged guilty of monopolistic behavior.

21. Economists generally prefer incentive-based programs to explicit regulation because incentive-based programs are more efficient.

22. According to the principle of rational choice, a consumer should spend money on those goods that give the most marginal utility.

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1. The basic economic decision rule is to undertake an action only when the marginal benefit of an action exceeds its marginal cost.

This is true. If the action will cost more than it benefits, there is no reason to undertake it.

2. If caviar prices doubled, while sales of caviar rose 20 percent, this example would definitely refute the law of demand.

false. The law of demand simply applies to the demand curve. When we integrate it with supply, we see that an increase in demand will lead to increase in prices.

3. In 1998, Hurricane Mitch not only destroyed homes in Central America, but also damaged around 40 percent of the bean crop. The damage of this crop is best represented by a shift to the right in the supply curve.

False. The supply curve shifts leftward when supply is reduced.

4. If the price of a good goes up by 5 percent and the quantity demanded falls by 15 percent, the price elasticity of demand is 1/3.

False. we calculate EoD as percent change quantity/ percent change price. So we have 15/5= 3.

5. Jane is maximizing utility when consuming two goods, coke and ...

Solution Summary

Questions relating to supply/demand analysis, elasticity, industry structure, and other topics.

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True/False and Multiple Choice Accounting Problems

True/False
1. The vice presidents of production and sales and the controller hold line positions in most large organization.
2. Managerial accounting information includes both historical and estimated data.
3. As product costs are incurred in the manufacturing process, they are accounted for as assets and reported on the balance sheet as inventory.
4. A manufacturer may employ a job order cost system for some of its products and a process cost system for others.
5. A process cost accounting system accumulates costs for each of the departments or processes within the factory.
6. In a perpetual inventory system, when the goods are sold, their costs are transferred from Work in Process to Finished Goods.
7. The document that serves as the basis for crediting accounts in the materials ledger is the purchase order.
8. Factory overhead is applied to production using a predetermined overhead rate.
9. The inventory accounts generally maintained by a manufacturing firm are Finished Goods and Materials.
10. Job order cost systems can be used to compare unit costs of similar jobs to determine if costs are staying within expected ranges.
11. Generally accepted accounting principles require companies to use only one factory overhead rate for product costing.
12. In the job order system, the finished goods account is the controlling account for the factory overhead ledger.
13. The cost of production report reports the cost of the goods sold.
14. In a process cost system, product costs are accumulated by processing departments rather than by job.
15. Conversion costs are usually incurred evenly throughout a process.
16. Both process and job order cost systems maintain perpetual inventory accounts with subsidiary ledgers.
17. The direct materials costs and direct labor costs incurred by a production department are referred to as conversion costs.
18. Both job order and process cost accounting use equivalent units of production to determine cost.
19. One of the primary uses of a cost of production report is to assist management in controlling production costs.
20. The first step in determining the cost of goods completed and ending inventory valuation using process costing is to calculate equivalent units of production.
21. Process manufacturers typically use large machines to process a continuous flow of raw materials into a finished state.
22. Cost allocation is the process of assigning indirect costs to a cost object, such as a job.
23. The cost of finished products on hand that have not been sold is work in process inventory.
24. If 20,000 units of materials enter production during the first year of operations, 16,000 of the units are finished, and 4,000 are 40% completed, the number of equivalent units of production would be 18,400.
25. If the costs for direct materials, direct labor, and factory overhead were $436,800, $54,600, and $26,600, respectively, for 14,000 equivalent units of production, the conversion cost per equivalent unit was $5.80.
Multiple-Choice
1. What is the primary criterion for the preparation of managerial accounting reports?
A. Relevance of the reports
B. Meet the manager needs
C. Timing of the reports
D. Cost of the reports
2. All of the following employees hold line positions in Althea Electric except:
A. Vice president of production
B. Vice president of finance
C. Manger of the Valhalla Plant
D. Vice president of sales
3. Compute conversion costs given the following data: Direct Materials, $247,800; Direct Labor, $183,400; Factory Overhead, $121,300.
A. $431,200
B. $552,500
C. $304,700
D. $369,100
4. For which of the following businesses would the process cost system be appropriate?
A. Book publisher
B. Dress designer
C. Lumber mill
D. Printing firm
5. The source of the data for debiting Work-in-Process for direct materials is the:
A. Purchase order
B. Purchase requisition
C. Materials requisition
D. Receiving report
6. In a job order cost accounting system, the entry to record the flow of direct materials into production is:
A. Debit Work in Process, credit material
B. Debit Materials, credit Work in Process
C. Debit Factory Overhead, credit materials
D. Debit Work in Process, credit Supplies
7. In a process cost system, ending inventory is valued by:
A. Finding the sum of all open job costs
B. Allocating departmental costs between completed and partially completed units
C. Multiplying units in ending inventory by the direct materials cost per unit
D. All of the above
8. In a process cost accounting, the costs of direct materials and direct labor are charged to:
A. Service departments
B. Processing departments
C. Customer accounts receivable
D. Job orders
9. Which of the following costs incurred by a paper manufacturer would be included in the group of costs referred to as conversion costs?
A. Advertising costs
B. Raw lumber
C. Machine operator's wages
D. Sales salaries
10. The three categories of manufacturing costs comprising the cost of work in process are direct labor, direct materials, and:
A. Indirect expenses
B. Direct expenses
C. Sales salaries expense
D. Factory overhead
11. Another term often used to refer to factory overhead is:
A. Surplus
B. Other manufacturing cost
C. Supervisory cost
D. Factory burden
12. What term is used to refer to the cost of changing direct materials into a finished manufactured product?
A. Factory overhead cost
B. Period cost
C. Conversion cost
D. Direct labor cost
13. Which of the following is not a way in which process and job order cost systems are similar?
A. Both accumulate product costs?direct materials, direct labor, and factory overhead
B. Both allocate product cost to unit produced
C. Both maintain perpetual inventories
D. Both use job order cost cards
14. If the cost of direct materials is a small portion of total production cost, it may be classified as part of:
A. Direct labor cost
B. Selling and administrative costs
C. Miscellaneous costs
D. Factory overhead cost
15. Which of the following is considered a part of factory overhead cost?
A. Sales commissions
B. Depreciation of factory buildings
C. Depreciation of office equipment
D. Direct materials used
16. The amount of time spent by each employee and the labor cost incurred for each individual job or for factory overhead are recorded on:
A. Clock cards
B. In-and-out cards
C. Time tickets
D. Employees' earnings records
17. The entry to record direct labor costs into production in a job order cost accounting system is:
A. Debit Factory Overhead, credit Work in Process
B. Debit Finished Goods, credit Wages Payable
C. Debit Work in Process, credit Wages Payable
D. Debit Factory Overhead, credit Wages Payable
18. At the end of the fiscal year, the balance in Factory Overhead is small. This balance would normally be:
A. Transferred to Work in Process
B. Transferred to Cost of Goods Sold
C. Transferred to Finished Goods
D. Allocated between Work in Process and Finished Goods
19. The details concerning the costs incurred on each job order are accumulated in a subsidiary ledger known as the:
A. Stock ledger
B. Materials ledger
C. Cost ledger
D. Creditors ledger
20. Each account in the cost ledger is called a:
A. Finished goods sheet
B. Stock record
C. Materials requisition
D. Job cost sheet
21. The recording of the application of factory overhead costs to jobs would include a credit to:
A. Factory Overhead
B. Wages Payable
C. Work in Process
D. Cost of Goods Sold
22. The finished goods account is the controlling account for the:
A. Cost ledger
B. Materials ledger
C. Work in process ledger
D. Cost of Goods Sold
23. A widely used activity base for developing factory overhead rates in highly automated settings is:
A. Direct labor hours
B. Direct labor dollars
C. Direct materials
D. Machine hours
24. When job 711 was completed, direct materials totaled $3,000;direct labor, $3,500; and factory overhead, $1,500, respectively. Units produced totaled 1,000. Unit costs are:
A. $8,000
B. $800
C. $80
D. $8
25. A difference in quantity of materials used on two comparable jobs may be caused by:
A. Inadequately trained employees
B. Poor quality materials
C. Employee carelessness
D. All of the above

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