Econ 102 Module 10 Assignment
General Instructions: Please provide your answers to the following in the spaces provided, and then upload your finished document to WebCampus. Don’t forget to save a copy of your document before turning it in.
If you are using Open Office or some other word processor, the steps will be quite similar, but not exactly the same. In any case, do some experimenting and get some help if necessary; and you will do fine. This is not an art class, and I don’t expect perfection in these matters.
Each question on this assignment will be assigned point values, for a total of 10 points for this assignment.
1. Briefly explain why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue. (1 point)
2. Briefly explain why the firm will not choose to a quantity where marginal cost is less than marginal revenue. (1 point)
3. Briefly explain why as output increases total cost eventually rises faster than total revenue for a perfectly competitive firm. (1 point)
4. Since a perfectly competitive firm can sell as much as it wishes at the market price, why can’t the firm simply increase its profits by selling an extremely high quantity? (1 point)
5. Russell has started a lawn-mowing business, but it isn’t going very well. His fixed costs are a truck, trailer and some equipment that has been rented for four more months at a cost of $1500. If he continues operating over these four months, the cost of labor (both his own and his employees) will be $4,000. Russell is worried about whether to keep the business going. If he expects to earn $6,000 in total revenue over the next four months, should he keep operating? Explain. What if he expects to earn $7,000 over the next four months? Explain. What if she expects to earn $8,000 over the next four months? Explain. (2 points)
6. “Because of all the competition it faces, a perfectly competitive firm should never expect to earn profits.” Is this statement true or false? Explain. (1 point)
7. “Because of all the competition it faces, a perfectly competitive firm should never expect to be making losses.” Is this statement true or false? Explain. (1 point)
8. Which will typically be higher: accounting or economic profits? Why? (1 point)
9. Which measure of profits takes the opportunity cost of financial capital into account: accounting, economic profits, neither measure of profits, or both? Explain. (1 point)
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