"A firm should shut down immediately when it earns zero economic profits." Do you agree or disagree? Explain your answer
What will be an ideal response?
Disagree. When a firm earns economic profits or breaks even, the price per unit of output sold still exceeds the average variable cost so that it is better off continuing to produce. The revenues in excess of variable costs can be used toward covering fixed costs. Only if the price per unit of output falls below the average variable cost that the firm should shut down.
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Consider a labor market that is initially in equilibrium. When the labor demand curve shifts to the left while the labor supply curve remains unchanged, the: a. equilibrium wage rate increases
b. price of the output that uses this labor resource increases. c. equilibrium number of workers hired increases. d. equilibrium wage rate falls.
The marginal productivity theory of distribution holds that
A. each factor is paid what it deserves. B. the owner of each factor is paid the amount that the factor contributes to earnings. C. each factor’s income depends on how hard it works. D. each factor receives an equal share of the revenue from production.