Mr. Capps recently built a dental floss factory in Montana. It cost $500,000 and is expected to last ten years. The plant can only be used to produce dental floss and will have no scrap value. When a recession occurs, the yearly revenue from the plant declines to $35,000 . compared to costs of $25,000 just for the variable resources required to produce the current rate of output. Mr. Capps should
a. shut down since he is experiencing economic losses (in other words, he will not get his $500,000 back).
b. reduce the price of dental floss if his demand is inelastic in order to increase his revenue.
c. raise the price of dental floss if his demand is elastic in order to increase his revenue.
d. continue to operate since he is covering his variable costs and the cost of the plant is a sunk cost.
D
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Economists proclaim that competitive firms make zero economic profit in the long run. This shows how
A) detached economists are from the real world. B) unrealistic economic theory is. C) firms cover all their cost, both monetary and non-monetary. D) firms cover only monetary cost when economic profits are zero.
In a progressive tax system
A) the marginal tax rate and the average tax rate are the same for every income level and the same as income increases. B) the marginal tax rate increase as income increases but the average tax rate does not change as income increases. C) the marginal tax rate and the average tax rate increase as income levels increase and the marginal tax rate exceeds the average tax rate. D) the marginal tax rate and the average tax rate decrease as income levels increase and the marginal tax rate is less than the average tax rate.
Which of the following is a valid effect of monopoly power?
A. Desirable effects on the distribution of wealth B. Efficient resource allocation C. Fostering of innovation D. Obstacle to efficiency
Money is created when someone
A. takes out a bank loan. B. pays back a bank loan. C. spends money. D. saves money.