Explain how firms choose the amount of capital goods to purchase and the amount of labor to hire
What will be an ideal response?
To maximize profits, firms will purchase capital goods as long as the capital goods produce more output than the firm has to pay for the capital goods. As long as the real rental price of capital is less than the marginal product of capital, firms will continue to purchase capital goods. Firms will purchase capital goods up to the point where the marginal product of capital is equal to the real rental price of capital. Firms will hire as long as the labor produces more output than the firm has to pay for the labor. As long as the real wage is less than the marginal product of labor, firms will continue to hire labor. Firms will hire labor up to the point where the marginal product of labor is equal to the real wage.
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In defining money according to the transactions approach, you would want to include
A) those assets that are used as a unit of account. B) those assets that are used as a store of value. C) those assets that are used as a medium of exchange. D) those assets that are used as a standard of deferred payment.
An indifference curve represents bundles of goods that a consumer
A) views as equally desirable. B) ranks from most preferred to least preferred. C) refers to any other bundle of goods. D) All of the above.
Answer the following statements true (T) or false (F)
1. If everyone had the same income, the Lorenz curve would become the line of income equality. 2. The farther the Lorenz curve bows away from the line of income inequality, the greater is the inequality of income distribution. 3. If new, highly progressive tax laws are enacted, the resulting Lorenz curve will move to the right-hand corner of the graph. 4. A country with an equal distribution of income will have a higher standard of living than a country with a more unequal distribution of income. 5. If income were distributed solely according to productivity, some individuals would not receive any income.
A firm's average fixed cost when producing 2,000 units of output equals $10 . When only 1,000 units of output are produced: a. AFC must still equal $10
b. AFC must equal $20. c. AFC must equal $5. d. marginal cost must equal $20.