If firms do not earn economic profits in a competitive equilibrium, why would the firms choose to stay in business?
What will be an ideal response?
When firms earn no economic profit but earn a normal profit, they earn precisely as much as they could have earned by investing their time and money elsewhere. In other words, each producer is able to earn sufficient accounting profits to cover the opportunity cost of invested factors (time and money) and to continue operating. The source of the confusion stems from the difference between accounting and economic profits.
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The investment function is represented by
A) an inverse relationship between the interest rate and the value of planned investment. B) the direct relationship between the interest rate and the value of planned investment. C) the indirect relationship between taxes and government spending. D) the direct relationship between taxes and government spending.
Macroeconomics is concerned with studying the
A) behavior of individual decision makers. B) performance of the economy as a whole. C) prices of specific companies' stocks. D) wants of individual consumers.