Ch008_4e - Answers to Text Questions and Problems Answers...

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Answers to Text Questions and Problems Answers to Review Questions 1. Wages have risen steadily over the past decades, largely because of productivity increases in manufacturing. Thus the cost of repairing a radio is now higher than the price of a new one since the cost of having a radio repaired is mostly determined by the earnings of the people doing the repairs. LO: 2 AACSB: Analytical Skills Bloom’s: Analysis 2. The owner of a business typically supplies valuable resources to the firm. There are always alternative uses of these resources, and it may be the case that he can earn a high rate of return on these resources in one of these alternative uses. If this is the case, then the implicit cost of these resources will be large and will drive economic profit to zero. LO: 1 AACSB: Analytical Skills Bloom’s: Analysis 3. Market forces such as entry to and exit from an industry shift supply curves and causes price changes that eliminate economic profit. There are no similar processes that affect the economic rent, since economic rent is the return to factors of production that are not easily duplicated. LO: 3 AACSB: Analytical Skills Bloom’s: Understanding 4. When fare reductions were prevented by regulators, airlines competed with one another by offering additional, costly services in order to differentiate themselves from competitors. Since economic profit is the difference between total revenue and total cost, high fares were often outweighed by even higher costs. LO: 4 AACSB: Analytical Skills Bloom’s: Analysis 5. If you receive $10,000 today, you can put this sum into a bank or other saving vehicle and earn interest for two years. The $10,000 you receive today will thus be worth $10,000 plus interest in two years, which is more than a $10,000 payment in two years. LO: 4 AACSB: Analytical Skills Bloom’s: Analysis
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Answers to Problems 1. True or false questions: a. False. The maxim tells us that there are no unexploited economic opportunities when the market is in long-run equilibrium . In fact, there often are unexploited economic opportunities when markets are not in equilibrium. b.
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This note was uploaded on 02/28/2012 for the course ECO 211 taught by Professor Arafat during the Summer '08 term at Anne Arundel CC.

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Ch008_4e - Answers to Text Questions and Problems Answers...

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