Reference no: EM133650118
Case: Imagine a recent UofT Econ grad who leaves a $200K/year job to be a start-up entrepreneur of a firm that earns annual revenue $500K and has annual hired labour and rental costs of $300K. The economic profit of the business is $200K.
True, the reason why this is true is because the firm earns $500K annually, subtract the expenses that the firm uses to make the product which is $300K. This leaves the answer to be $500-$300=200K in profit. However, if there are any other operation costs that were not mentioned then the profit would be directly correlated.
A decrease in the wage rate (or some other short-run variable input price) will shift down the marginal cost curve.
True, the reason why this is true is because the decrease in wage rate or alternative variable will affect the total cost. Therefore, the marginal cost will decrease as the wage rate decreases leading to the marginal cost curve to shift down. Overall, this means that the cost to produce a product will be lower.
If a firm decides to increase its output level, its average costs are higher in the short-run than they are in the long-run.
True, the reason why this is true is because the short-run average cost does not get to choose its inputs and because we are unsure if there is enough capital for proper expansion. Overall, changes in output levels affect costs less in the LRAC than they do in the SRAC. This can be shown in the graph as the tangency between the LRAC curve and the appropriate SRAC meet at every possible q. This shows that with the LRAC you can choose what input would be the most efficient to produce products.
Suppose the government institutes an environmental tax on the firms in a competitive industry that is the same amount regardless of output level. In the short-run firms bear the full burden of this tax, but consumers bear it in the long-run. Problems [20 marks - marks for each part as shown]
Uncertain, the reason why this is uncertain is because for the short run the firms would not be able to change their prices to match the tax given, meaning they bear the full burden. However, for the long-run, firms can adjust their methods of production to better fit their needs to be more efficient. This can lead consumers to bear part of the tax in the long run. They wouldn't bear all of it because if firms were to do this then they would lose demand to other firms in the industry.