If there are no profits in competitive equilibrium, why do firms produce? How can they stay in business?
What will be an ideal response?
The “no profits” conclusion of competition refers to economic profits—there is no excess rate of return to the typical firm. However, each firm is able to earn sufficient accounting profits to cover the opportunity cost of invested factors and to continue operating. The source of the confusion is failing to distinguish between accounting and economic profits.
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The Federal Reserve ___
a. oversees the US banking system b. determines the size of M1 and M2 and sets US interest rates c. is the central bank of the US d. all
Applying neoclassical theory to the housing market, the idea that "housing is a good investment" refers to ________
A) higher expected household income B) the inability to buy as much housing at a higher price C) an expected increase in the relative price of housing D) a decrease in the cost of building new houses