Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 21, Problem 11CQ
To determine
Principal agent problem between owners and managers.
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Why are abnormal profits of a firm difficult to sustain?
You turned down a job at ABC Corp last year that would have paid you $125,000 per year and started your own
company. When you calculated your economic profit, it came out at $0. You expect the business will be exactly the
same next year.
ABC called and said you could still take the job. You should...
A. Keep running your company as-is.
B. Keep running your company but pay yourself less.
C. Keep running your company but pay yourself more.
D. Shut down your company and take the job at ABC.
Should a company produce more goods when marginal revenue is greater than marginal costs? Explain.
Chapter 21 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- A manager makes the statement that output should be expanded as long as average revenue exceeds average cost. Does this strategy make sense? Explain.arrow_forwardWhy is a normal profit considered an economic cost?arrow_forwardThere are 38 nearly identical ABC stores within a one-mile radius in Waikiki. The combined size of these 38 stores allows ABC to offer large quantities at favorable prices. a. ABC gained market power through economies of scale government protection control of an important input . b. ABC’s market power does does not guarantee that the firm makes an economic profit.arrow_forward
- Why would a firm that incurs losses choose to produce rather than shut down?arrow_forwardRob quit his $4,000/month coffee shop position and started an ice-cream business. Rob does not get paid a salary for running the ice-cream business. When calculating the economic profit of the ice-cream business, his old $4,000 coffee shop salary is Select one: a. counted as part of the total revenue. b. counted as part of the implicit costs. c. counted as part of the explicit costs. d. ignored.arrow_forwardPlease help someonearrow_forward
- Tim is thinking of opening a garment store. He estimates that it would cost $270000 per year to rent the location and buy the merchandise. In addition, he would have to quit his $63000 per year day job. Tim estimates he can sell $315600 worth of garments in a year. a. What will be the accounting profit and economic profit for Tim? b. If you are an economist, should you suggest opening the store? Why?arrow_forwardChoose a product or service that you are familiar with (something you use or have used, something related to a job you or someone close to you has held, etc.). Are there a lot or few firms in the industry? Are the products similar or identical or without close substitutes? Are there barriers to entry and, if so, what are they?arrow_forwardThe table represents the demand (quantity at each price) for and the total cost to produce a firms product. Complete the last three columns of the table above. a. Based upon the data in your table, how many products will the firm produce and at what price will it sell it product to maximize profit? Will the firm make an economic profit? If so, how much? b. In what type of market structure does this firm participate? How did you decide this?arrow_forward
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