Why would a firm choose to remain in an industry in which it makes an economic profit of zero?
What will be an ideal response?
Making an economic profit of zero does not mean that the firm is not making any money. It means that it is covering all its costs, including opportunity costs. This means that all resources employed are earning just as much as they would in their next-best use, and thus that there is no gain from moving them to their next -best use.
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The diamond-water puzzle, described by Adam Smith, suggests that the consumer’s surplus of water is high and the consumer’s surplus for diamonds is low.
Answer the following statement true (T) or false (F)
Two college students, Mary and Maggie, are spending spring break in Florida. Mary buys a cup of coffee each morning at the local Starbucks rather than from one of the local coffee shops. Maggie claims that Mary is irrational because she never purchases Starbucks coffee at home, and Starbucks coffee costs more than the coffee sold by local shops. An economist would most likely explain Mary's
behavior by suggesting that a. Mary's behavior is rational, but Maggie's behavior is clearly irrational. b. Mary's behavior is clearly irrational, but Maggie's behavior is rational. c. the Starbucks brand name suggests consistent quality. d. the advertising by Starbucks in Florida is more persuasive than the advertising by Starbucks in Mary and Maggie's home town.
Refer to the information provided in Table 14.4 below to answer the question that follows. Table 14.4B's Strategy ?Raise PriceDon't Raise Price?RaiseA's profit $6,000A's profit $20,000?PriceB's profit $6,000B's profit $30,000A's Strategy????Don'tA's profit $30,000A's profit $10,000?RaiseB's profit $20,000B's profit $10,000Refer to Table 14.4. Firm A?s optimal strategy is
A. dependent on what Firm B does. B. to raise the price of its product. C. to not raise the price of its product. D. indeterminate from this information, as no information is provided on Firm A?s risk preference.
Legislation setting high minimum wage rates benefits
A) many people receiving wages far above the minimum by reducing competition from unskilled workers. B) no group in the economy, but is nonetheless widely supported out of ignorance. C) only people who were previously receiving less than the legal minimum. D) primarily teenagers and unskilled workers. E) the whole economy by pushing up average income.