Suppose that you open your own business and earn an accounting profit of $40,000 per year. When you started your business, you left a job that paid you a $25,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business. If the normal rate of return on capital is 5 percent, your economic profit is
A. -$55,000.
B. -$11,500.
C. $15,000.
D. $11,500.
Answer: D
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When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; decline B. increase; raise; decline C. decline; lower; expand D. decline; raise; decline
In the long run, firms in monopolistic competition earn zero economic profit because
A) firms are free to enter and exit. B) their products are similar but slightly different. C) of over-reliance on product marketing. D) of collusion among the various sellers. E) their demand curves are horizontal.
The wealth effect on consumer spending is
A) about the same as the effect on plant and equipment expenditure. B) about the same as the effect on residential construction. C) less than the effect on plant and equipment expenditure. D) larger than the effect on residential construction.
Total cost is the
a. amount a firm receives for the sale of its output. b. fixed cost less variable cost. c. market value of the inputs a firm uses in production. d. quantity of output minus the quantity of inputs used to make a good.