LESSON 12

Profits and entrepreneurship

Activity 48:
Comprehension quiz, lesson 12

PART I
Complete the following by circling the letter of the best answer.

1. The correct formula for finding a firm's profit is:
   1. profit = total revenue - total cost
   2. profit = (price x number sold) - cost per item
   3. profit = (cost per item - price) x number sold
2. Many entrepreneurs overestimate their profits because they:
   1. don't keep records of their sales
   2. don't consider the value of their time
   3. don't try to control their labor costs
3. Resources tend to flow to firms that are efficient and profitable because:
   1. they have a greater need for those resources
   2. they use those resources more quickly
   3. they can afford to pay for those resources
4. If the owners of a firm have no expectation of ever earning a profit, they should:
   1. go out of business and put their money in a bank
   2. try to merge their business with another larger firm
   3. lower their prices so they can sell more items

PART II
Joe makes deliveries in the evening and on Saturdays for a local drug store. By carrying the items, he earned $80 each week. He saved his money until he had $4,000. Joe decided to buy a used car with his money. By driving the car, he is able to deliver more items and now earns $120 a week. Joe believes the car was a wise investment. Write a brief essay that explains why Joe probably is wrong.

Joe is probably wrong because the cost of owning a car in all likelihood exceeds the extra $40 a week he earns. Insurance alone is likely to cost about $1,000 a year (or more). He should also realize that the value of the car will depreciate over time.

 

Used with permission. Master Curriculum Guide: Economics and Entrepreneurship, copyright © 1991,National Council on Economic Education, New York, NY. All rights reserved.For more information visit www.ncee.net or call 1-800-338-1192.