Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 3, Problem 11CQ
To determine
The actions taken by an entrepreneur to earn profit and its effects on the value of resources and the effect of loss associated with a firm.
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What happens to the value of resources when losses are present? If a firm making losses goes out of business, is this bad? Why or why not?
Why do economists believe that economic profit is the more accurate measure of a business success? Why is economic profit the superior method of determining a business success?
How does a firm decide whether to stay in business if it is earning a loss? Discuss in detail.
Chapter 3 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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- Why is it reasonable to think of normal profit as a type of cost to the firm?arrow_forwardI was wondering what the answer to this problem in Krugman´s microeconomics book is: A benefit maximizer company has an economic loss of 10.000$ per year. Its fixed cost is 15.000$ per year. In the short term, should they keep producing or should the close the business? In the long run, should they stay in business? And if the company had a fixed cost of 6.000$ per year, should they stay in business in the long and short run? Thank you!arrow_forwardThe correct answer to whether it should be produced is that the firm should produce in the short term if it can either make a profit or a loss less than its total costs. True or falsearrow_forward
- Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down?arrow_forwardWhy are abnormal profits of a firm difficult to sustain?arrow_forwardHow much should a firm sell of a particular product in order to maximize profit? What factor does it have to consider in arriving at this decision?arrow_forward
- Family Mart like inner city grocery stores, sometimes exist even though they do not earn economic profits. How can you explain this? It is clear that businesses operate in the short run, but do they ever operate in the long run? Discuss. What are the different type of costs incurred in the short run and in the long run?arrow_forwardSmall “Mom and Pop firms,” like inner city grocery stores, sometimes exist even though they do not earn economic profits. How can you explain this?arrow_forwardTim 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_forward
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