The underground economy—the informal sector—can be a significant drag on the economies of developing countries. Why are firms in the informal sector often less efficient than firms in the formal sector?
What will be an ideal response?
Entrepreneurs of the firms in the informal sector limit their investments in capital equipment because they are afraid that the firms will someday be shut down. The workers in the firms, consequently, have less capital equipment to work with.
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How do economies of scale contribute to the development of an oligopoly?
A) Economies of scale make it legally difficult for new firms to enter. B) Economies of scale make small-scale producers inefficient. C) Economies of scale are based on control of a key resource, without which other firms cannot enter an industry. D) Economies of scale are guaranteed when a patent is granted.
If a firm triples all of its inputs and its output doubles, it is said to be experiencing
a. diminishing marginal returns b. increasing marginal returns c. diseconomies of scale d. economies of scale e. constant average costs
The money supply is the amount of money:
A. that banks keep on hand. B. that banks keep on hand beyond the reserve requirement. C. available in the economy. D. available for banks to lend.
A perfectly competitive ebook publishing firm currently sells its ebook at the market price of $6. Its average total cost is $5.50. In this case:
a. since average total cost is less than the price, the firm will shut down. b. the firm has positive economic profits. c. the firm is losing money but will continue to operate. d. the firm has zero economic profits.