A firm has explicit costs of $110,000 and total revenue of $120,000. Which of the following is true about the firm?
A) The firm is incurring an economic loss if implicit costs are $10,000.
B) The firm is making a normal profit if implicit costs are $0.
C) The firm might be making an economic profit but we need more information about implicit costs to know for sure.
D) The firm is definitely making an economic profit because it must be minimizing its opportunity cost.
E) The firm may be making an economic profit but only if implicit costs are negative.
Answer: C) The firm might be making an economic profit but we need more information about implicit costs to know for sure
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A. lower; potential B. higher; higher C. lower; higher D. higher; potential
Answer the following statements true (T) or false (F)
1. Total annual production in the United States is in excess of $14 trillion. 2. The ability to produce a good or service using fewer resources than other producers use is known as comparative advantage. 3. Japan has a low standard of living because of its shortage of resources. 4. Technological development can be applied to the improvement of human capital as well as physical capital.
A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome. Under what condition will the solution (the subsidy) be worse than the problem (the market failure)?
A. Under the condition that the subsidy is greater than the marginal external benefit (associated with the positive externality). B. Under the condition that the post-subsidy output is not farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. C. Under the condition that the post-subsidy output is farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. D. Under the condition that the subsidy is less than the marginal external benefit (associated with the positive externality). E. none of the above
Which of the following is NOT a key financial service provided by the financial system?
A) risk sharing B) profitability C) liquidity D) information