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Explain the following statement: “Profits that more than cover the cost of capital are known as economic rents.”
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- Select all that are true regarding profit: (please choose all the answers that are correct) Profit is the residual revenue after the cost of inputs Profit must consider both fixed and variable costs Increases in productivity increase profits, if output is increased Profits do not accrue to HHConsider the following statements about economic profits and accounting profits. Select all the statements which are true. Economic profits include both explicit and implicit costs, while accounting profits include only implicit costs Economic profits are always larger than accounting profits Publicly traded firms report accounting profits, not economic profits Firms that earn zero economic profits probably earn positive accounting profits3) A paper factory signed contract to produce 1000 reams of paper each week for a customer. The paper plant's production function is Q = 4K0.75 L0.25, where Q is output (reams produced), K is the quantity of capital rented, and L is the quantity of labor hired. Each worker is paid $10 per hour and each machine rents for $60 per hour. a. What is the MRTSLK? Demonstrate. b. Find the optimal amount of Labor and capital that is needed to produce 1,000 reams per week. c. What is the firms' total cost of producing the 1,000 reams? d. Draw a diagram of the iso-quant and the iso-cost lines and identify the optimal input combination. e. Suppose the firm needs to increase production to 1,100. Without redoing the full analyses, determine how much additional labor and capital will be needed to achieve this. (This is a one-line answer).
- State whether the following is true or false Pure economic rent occurs when the opportunity cost of a resource is zero and there is a positive price for that resources in the market1200 100.0 20.0 F20 100 -100 A company produces school buses. The graphs of the Cost function (red) and the Revenue function (blue) are given on the figure. (You may click on the figure to see a bigger version.) The horizontal axes represents quantity in number of units. Cost and Revenue are measured in thousands of dollars. Answer the following questions. 1. What are the fixed costs? Answer: thousand dollars. 2. Suppose the current level of production is 19 buses. Should the company produce 20 th bus? Answer "yes" or "no" 3. Between 0 and 100, approximately what level of production maximizes the profit? (Or minimizes the losses if the company doesn't make any profit). Answer:Aji Fatou is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $85,000 per year job as an engineer. If Aji Fatou thinks she can sell $570,000 worth of merchandise in a year, Aji Fatou's accounting profit is and her economic profit is (please put your answer for accounting profit and economic profit, in numerical values without any dollar sign, comma or decimal place). Should Aji Fatou open the store? (please put your answer as yes, no or indifferent, all lower cases).
- If You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year. then your accounting profit is: Select one: a. 20,000 Ob. 30,000 O c. 40,000 O d. 10,000 O e. 60,000The city government is considering two tax proposals: • A lump-sum tax of $300 on each producer of hamburgers. • A tax of $1 per burger, paid by producers of hamburgers. Which of the following statements is true as a result of the lump-sum tax? Check all that apply. Marginal cost will remain unchanged. Average total cost will increase. O Average fixed cost will decrease. O Average variable cost will increase. Which of the following statements is true as a result of the per-burger tax? Check all that apply. Average total cost will remain unchanged. Marginal cost will increase. O Average variable cost will increase. Average fixed cost will decrease.If the marginal personal tax rate imposed on interest income paid to bondholders were to increase, holding the corporate tax rate and the personal tax rate on payments to equity (e.g., taxes on dividends), what is the impact on the marginal benefit of debt to the corporation? How might this effect the optimal amount of debt the firm should have in its capital structure?
- The idea of "economic rent" can be applied to resources other than land. What is economic rent? O The additional "pay" the owner of a resource can earn greater than its "supply price." It's when supply is greater than demand. |0|0|0 O It applies to apartment rent in large cities where rents are outrageous. OIt refers to ridiculously high taxes on entrepreneurs.a) The owners of firms in the real world would generally expect (in the long run at least) to have some positive of profits on their accounting statements. However, in economic models we usually assume that firms will be willing to operate for zero economic profits even for the long term. Explain why this is the case.During a coffee-room debate among several young MBAs who had recently graduated, one of the young executives flatly stated, “The most this company can lose on its Brazilian division is the amount it has invested (its fixed costs).” Not everyone agreed with this statement. In what sense is this statement correct? Under what circumstances could it be false? Explain.
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