Suppose Alex owns a business making quilts that generates $8,000 a month in revenue. Each month, Alex spends $1,800 on fabric and other sewing materials, and he pays his two employees a combined total of $4,800 per month (they each earn $2,400). Alex makes his quilts in a workshop he has set up in his basement. If Alex did not own the quilt business, he would work as a yoga instructor earning $2,200 per month, and he would use the basement as a TV room, an option he would value at $60 per month. a. What is Alex's accounting profit? Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-). b. What is Alex's economic profit? Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-). c. If the market for quilts is perfectly competitive, and other quilt producers face the same costs as Alex, then what would you expect to happen to both the number of firms making quilts and the equilibrium price of quilts in the long run. Briefly explain. You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price to fall. You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to rise. You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price to fall. ○ You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to rise.
Suppose Alex owns a business making quilts that generates $8,000 a month in revenue. Each month, Alex spends $1,800 on fabric and other sewing materials, and he pays his two employees a combined total of $4,800 per month (they each earn $2,400). Alex makes his quilts in a workshop he has set up in his basement. If Alex did not own the quilt business, he would work as a yoga instructor earning $2,200 per month, and he would use the basement as a TV room, an option he would value at $60 per month. a. What is Alex's accounting profit? Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-). b. What is Alex's economic profit? Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-). c. If the market for quilts is perfectly competitive, and other quilt producers face the same costs as Alex, then what would you expect to happen to both the number of firms making quilts and the equilibrium price of quilts in the long run. Briefly explain. You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price to fall. You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to rise. You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price to fall. ○ You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to rise.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose Alex owns a business making quilts that generates $8,000 a month in revenue. Each month, Alex spends $1,800 on fabric
and other sewing materials, and he pays his two employees a combined total of $4,800 per month (they each earn $2,400). Alex
makes his quilts in a workshop he has set up in his basement. If Alex did not own the quilt business, he would work as a yoga
instructor earning $2,200 per month, and he would use the basement as a TV room, an option he would value at $60 per month.
a. What is Alex's accounting profit?
Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-).
b. What is Alex's economic profit?
Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-).
c. If the market for quilts is perfectly competitive, and other quilt producers face the same costs as Alex, then what would you expect to
happen to both the number of firms making quilts and the equilibrium price of quilts in the long run. Briefly explain.
You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price
to fall.
You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to
rise.
You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price
to fall.
○ You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price
to rise.
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