Is it a good thing to go to a point where marginal profit is zero? Explain.
What will be an ideal response?
A common misunderstanding about marginal analysis is the idea that it seems foolish to go to a point where marginal profit is zero. “Isn’t it better to earn a positive marginal profit?” This notion springs from confusion between the quantity one is seeking to maximize (total profit) and the gauge that indicates whether such a maximum has actually been attained (marginal profit). It is better to have a positive total profit than a zero total profit. In contrast, a zero value on the marginal profit gauge merely indicates that all is well that total profit is at its maximum, that we are at the top of the profit hill, where the slope is zero.
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As a competitive firm hires increasing amounts of labor, the value of marginal product of labor
A) decreases. B) increases. C) remains constant. D) decreases then increases.
The size of the underground economy would tend to increase if the government of a country
A) increased income tax rates. B) decreased government regulations on businesses. C) legalized prostitution. D) legalized marijuana.
What policy approach would an economist propose to internalize the externalities created by resource use? What is the basis for, and objection to, this type of policy?
What will be an ideal response?
Which of the following is not considered as a unilateral transfer?
a. income earned from foreign investments b. foreign aid c. personal gifts to friends or family abroad d. institutional charitable donations e. government transfers to foreign residents