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Question: What is the difference between zero accounting


What is the difference between zero accounting profit and zero economic profit?


> The graph on the next page illustrates the average total cost curves for two automobile manufacturing firms: Little Auto and Big Auto. Under which of the following conditions would you expect to see the market composed of firms like Little Auto, and unde

> Sam Goldwyn, a movie producer during Hollywood’s Golden Age in the 1930s and 1940s, once remarked about one of his stars: “We’re overpaying him, but he’s worth it.” a. In what sense did Goldwyn mean that he was overpaying this star? b. If he was overpayi

> In the first years following the passage of the Clean Air Act in 1970, air pollution declined sharply, and there were important health benefits, including a decline in infant mortality. According to an article in the Economist, however, recently some pol

> While a professor at the Harvard Business School, the late Thomas McCraw wrote: “Throughout American history, entrepreneurs have tried, sometimes desperately, to create big businesses out of naturally smallscale operations. It has not worked.” What advan

> An article in the Wall Street Journal noted that Google was planning on entering the market to provide wireless data services. According to the article, “Google has said it isn’t looking to supplant the big carriers, and Verizon’s and AT&T’s enormous sca

> Michael Porter has argued that “the intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure.” What does Porter mean by “economic structure”

> Give an example of a government-imposed barrier to entry. Why would a government be willing to erect barriers to firms entering an industry?

> What do barriers to entry have to do with the extent of competition in an industry? What is the most important reason that some industries, such as music streaming, are dominated by just a few firms?

> In his review of a book, business writer Nick Schultz cited the following passage that refers to the market for high-speed Internet access: “There are two enormous monopoly submarkets—one for wireless and one for wired transmission. Both are dominated by

> What is an oligopoly? Give three examples of oligopolistic industries in the United States.

> JustFab is an online fashion retailer that analyzes information about customers obtained from its Web site to gauge the clothing they like most and the frequency of their purchases. This information has enabled the company to respond quickly to changes i

> What is consumer surplus? How does consumer surplus change as the equilibrium price of a good rises or falls?

> Briefly explain whether you agree with the following statement: “If consumer surplus in a market increases, producer surplus must decrease.”

> Why are there superstar basketball players but no superstar plumbers?

> Writing about a trip to Switzerland in an article in the New York Times, economist Daniel Hamermesh noted that electrical outlets in Switzerland use an unusual threeprong plug. Adapters for that type of plug are not typically included in adapter sets, so

> Some companies have done a poor job protecting the images of their products. For example, Hormel’s Spam brand name is widely ridiculed and is associated with annoying commercial messages received via e-mail. Think of other cases of companies failing to p

> For years, the Abercrombie & Fitch clothing stores received free advertising by placing the company logo prominently on the shirts, hoodies, and other clothing they sell. A news story indicated that in 2015, Abercrombie intended to remove its logos from

> A skeptic says: “Marketing research and brand management are unnecessary. If a company wants to find out what customers want, it should simply look at what they’re already buying.” Do you agree with this comment? Explain.

> Draw a graph that shows the effect on a firm’s profit when it increases spending on advertising but the increased advertising has no effect on the demand for the firm’s product.

> Why are many companies so concerned about brand management?

> Define marketing. Is marketing just another name for advertising?

> In recent years, consumers have been less willing to buy packaged foods that contain gluten or high levels of fat and salt or soft drinks containing sugar. Firms such as General Mills, Kellogg, and Coca-Cola have responded by modifying many of their prod

> Consider the following graph: a. At the profit-maximizing level of output, how much economic profit is this firm earning? Briefly explain. b. Is this firm allocatively efficient? Is it productively efficient? Briefly explain. Price and MC ATC cost

> What is the difference between a change in demand and a change in quantity demanded?

> According to Alan Krueger, an economist at Princeton University, the share of concert ticket revenue received by the top 1 percent of all acts rose from 26 percent in 1982 to 56 percent in 2003. Does this information indicate that the top acts in 2003 mu

> In describing what happened to Crumbs Bakery, an analyst of the food industry noted the entry of competitors such as Sprinkles and Georgetown Cupcake. He concluded, “It got to the level where there were too many cupcakes and not enough people who wanted

> Consider the following graph: a. Is it possible to say whether this firm is a perfectly competitive firm or a monopolistically competitive firm? If so, explain how you are able to make this determination. b. Does the graph show a short-run equilibrium

> Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you find some indication about whether a publishing company actually is using cost-plus pricing for all its books?

> Suppose that the following table shows the quantity supplied of UGG boots at five different prices in 2016 and 2017: Name two different variables that if their values were to change would cause the quantity supplied of UGG boots to change from 2016 to

> A student makes the following comment: I can understand why a perfectly competitive firm won’t earn a profit in the long run because it charges a price equal to marginal cost. But a monopolistically competitive firm can charge a price greater than margin

> Does the fact that monopolistically competitive markets are not allocatively or productively efficient mean that there is a significant loss in economic well-being to society in these markets? In your answer, be sure to define what you mean by “economic

> Why is a monopolistically competitive firm not allocatively efficient?

> Why is a monopolistically competitive firm not productively efficient? In what sense does a monopolistically competitive firm have excess capacity?

> What are the differences between the long-run equilibrium of a perfectly competitive firm and the long-run equilibrium of a monopolistically competitive firm?

> An article in the Wall Street Journal reported that Western European brewers such as Heineken, Carlsberg, and Anheuser-Busch InBev are increasing their production and marketing of nonalcoholic beer. The article quotes a Carlsberg executive for new-produc

> Suppose that the government sets a price floor for milk that is above the competitive equilibrium price and that the government does not purchase any surplus milk. a. Draw a graph showing this situation. Be sure your graph shows the competitive equilibri

> What does an increasing marginal opportunity cost mean? What are the implications of this idea for the shape of the production possibilities frontier?

> Michael Korda was, for many years, editor-in-chief at the Simon & Schuster book publishing company. He has written about the many books that have become bestsellers by promising to give readers financial advice that will make them wealthy, by, for exampl

> In 2015, analysts at the Goldman Sachs investment bank were optimistic that Buffalo Wild Wings would increase its profit over the next few years. They cited two factors as favorable to the chain’s profitability: The chain’s “greater pricing power allows

> An article in the New York Times describes Chipotle as “the restaurant chain that has come to symbolize the tastes of the millennial generation” and lists the sources of Chipotle’s success as including the restaurant’s allowing “their customers to tailor

> The following table shows the hourly output per worker in two industries in Chile and Argentina. a. Explain which country has an absolute advantage in the production of hats and which country has an absolute advantage in the production of beer. b. Expl

> Competition from Amazon and other online booksellers has resulted in some brick-and-mortar bookstores suffering losses. According to an article in the New York Times, over the past 15 years, the number of bookstores in the borough of Manhattan in New Yor

> Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts, “If even one poor person is helped with this method, then all

> A student remarks: If firms in a monopolistically competitive industry are earning an economic profit, new firms will enter the industry. Eventually, a representative firm will find that its demand curve has shifted to the left, until it is just tangent

> Suppose Angelica opens a small store near campus, selling beef brisket sandwiches. Use the graph below, which shows the demand and cost for Angelica’s beef brisket sandwiches, to answer the following questions. a. If Angelica wants to

> Chipotle Mexican Grill restaurants have been a very popular “fast-casual” dining option—with better food choices than fast-food restaurants like McDonald’s and faster service and lower prices than traditional restaurants. Chipotle’s profit per restaurant

> Through the 2014 season, Nick Saban’s record as the head football coach at the University of Alabama was 86 wins and 17 losses. His $7 million salary is the highest received by any college football coach. One sports writer described Saban as the most und

> Is it possible for a monopolistically competitive firm to continue to earn an economic profit as new firms enter the market?

> What is scarcity? Why is scarcity central to the study of economics?

> Why does the entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to shift to the left and to become more elastic?

> What effect does the entry of new firms have on the economic profit of existing firms?

> Use the following graph for Elijah’s Burgers to answer the questions. a. If Elijah produces at the profit-maximizing level of output, how much is his total revenue? How much is his total cost? Briefly explain your calculations. b. How

> Paolo currently has $100,000 invested in bonds that earn him 10 percent interest per year. He wants to open a pizza restaurant and is considering either selling the bonds and using the $100,000 to start his restaurant or borrowing $100,000 from a bank, w

> In 1916, Ford Motor Company produced 500,000 Model T Fords, at a price of $440 each. The company made a profit of $60 million that year. Henry Ford told a newspaper reporter that he intended to reduce the price of the Model T to $360, and he expected to

> William Germano previously served as the vice president and publishing director at the Routledge publishing company. He once gave the following description of how a publisher might deal with an unexpected increase in the cost of publishing a book: It’s o

> In 2012, then Barnes & Noble CEO William Lynch predicted that although the firm was suffering losses in selling its Nook tablet, “the Nook business will scale in fiscal 2013, reducing losses from last year.” a. What did Lynch mean that “the Nook busines

> Managers of Major League Baseball (MLB) teams have the responsibility of running their teams and making many decisions that can affect whether these teams win or lose. Yet in 2014 only 2 of the 30 MLB managers received a salary higher than the average sa

> According to an article in the New York Times, in 2014 Chipotle Mexican Grill experienced an increase in the cost of the beef used in its beef burritos. Draw a graph showing the effect of this increase on the price of Chipotle’s burritos and on the quant

> Suppose a firm producing table lamps has the following costs: Ben and Jerry are managers at the company, and they have this discussion: Ben: We should produce 4,000 lamps per month because that will minimize our average cost. Jerry: But shouldnâ&

> Is it possible for technological change to be negative? If so, give an example.

> Maria manages a bakery that specializes in ciabatta bread, and she has the following information on the bakery’s demand and costs: a. To maximize profit, how many loaves of ciabatta bread should Maria sell per hour, what price should

> If Daniel sells 350 Big Macs at a price of $3.25 each, and his average cost of producing 350 Big Macs is $3.00 each, what is his profit?

> Stephen runs a pet salon. He is currently grooming 125 dogs per week. If instead of grooming 125 dogs, he grooms 126 dogs, he will add $68.50 to his costs and $60.00 to his revenues. What will be the effect on his profit of grooming 126 dogs instead of 1

> Why doesn’t a monopolistically competitive firm produce where P = MC, as a perfectly competitive firm does?

> Sally runs a vegetable stand. The following table shows two points on the demand curve for the heirloom tomatoes she sells: a. What would Sally’s marginal revenue be from lowering the price of tomatoes from $5.00 to $3.25? b. Calculat

> Suppose you see a 2013 Volkswagen Jetta GLS Turbo Sedan advertised in the campus newspaper for $9,000. If you knew the car was reliable, you would be willing to pay $10,000 for it. If you knew the car was unreliable, you would be willing to pay $5,000 fo

> Leonard Fleck, a philosophy professor at Michigan State University, has written: When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will

> Joe Morgan is a sportscaster and former baseball player. After he stated that he thought the salaries of Major League Baseball players were justif ied, a baseball fan wrote the following to Rob Neyer, a sports columnist: Mr. Neyer, What are your feelings

> In the graph on the following page, consider the marginal revenue of the eleventh unit sold. When the firm cuts the price from $5.00 to $4.75 to sell the eleventh unit, what area in the graph denotes the output effect, and what is the dollar value of the

> Is it possible for marginal revenue to be negative for a firm selling in a perfectly competitive market? Is it possible for marginal revenue to be negative for a firm selling in a monopolistically competitive market? Briefly explain.

> There are many wheat farms in the United States, and there are also more than 1,800 Chipotle restaurants. Why, then, does a Chipotle restaurant face a downward-sloping demand curve, while a wheat farmer faces a horizontal demand curve?

> What is the definition of marginal utility? What is the law of diminishing marginal utility? Why is marginal utility more useful than total utility in consumer decision making?

> In his autobiography, T. Boone Pickens, a geologist, entrepreneur, and oil company executive, wrote: It’s unusual to find a large corporation that’s efficient…. When you get an inside look, it’s easy to see how inefficient big business really is. Most co

> Complete the following table, which shows the demand for snow skiing lessons per day: Average Revenue Marginal Revenue Snow Skiing Lessons per Price Day (Q) TR AR (P) (TR = Px Q) Total Revenue ATR MR = AQ = %3D $80.00 75.00 70.00 65.00 4 60.00 55.00

> Purell announced that the new chemical formula for its hand sanitizer was so effective that “just 1 squirt of Purell Advanced Hand Sanitizer kills as many germs as two squirts of any other national brand.” If Purell succeeds in convincing consumers that

> There are about 400 wineries in California’s Napa Valley. Describe the reaction of consumers if the owner of one of the wineries—Jerry’s Wine Emporium—raises the price of his wine by $5.00 per bottle, assuming the following: a. The industry is perfectly

> With a downward-sloping demand curve, why is average revenue equal to price? Why is marginal revenue less than price?

> Why does a local McDonald’s face a downward-sloping demand curve for its Quarter Pounders? If McDonald’s raises the price of Quarter Pounders above the prices other fast-food restaurants charge for hamburgers, won’t it lose all its customers?

> An article in the Wall Street Journal on the use of driverless trucks at Rio Tinto’s Australian mines observes, “The new equipment cut many driving jobs… . But the reductions will be partly offset by new types of work. The company now needs more network

> What are the most important differences between perfectly competitive markets and monopolistically competitive markets? Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive

> Economists’ estimates of price elasticities can differ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. An article in the New York Times contained the following statement

> Why are consumers so powerful in a market system?

> Suppose that at the beginning of a year, the price of corn is $3.80 per bushel and 14 billion bushels are harvested. There are approximately 400,000 corn farmers, so the average output per farmer is about 350,000 bushels. The following graphs assume that

> Describe the five steps economists follow to arrive at a useful economic model.

> According to an article in the Wall Street Journal, as a result of U.S. consumers increasing their demand for beef, in 2015 world beef prices increased. For example, according to the article, “Australian beef prices are up 40% this year, while New Zealan

> Suppose that each of the following is true: (1) The laptop computer industry is perfectly competitive and that the firms that assemble laptops do not also make the displays, or screens; (2) the laptop display industry is also perfectly competitive; and

> In recent years, the United States has experienced large increases in oil production due in large part to a new technology, hydraulic fracturing (“fracking”). Fracking involves injecting a mixture of water, sand, and chemicals into rock formations at hig

> Suppose that currently the market for gluten-free spaghetti is in long-run equilibrium at a price of $3.50 per box and a quantity of 4 million boxes sold per year. If the demand for gluten-free spaghetti permanently increases, which of the following comb

> According to a news story, the Boston-based game company Proletariat launched its first mobile game, World Zombination, after having “spent nearly 18 months and $2 million to develop it.” In the first three months following the game’s release in February

> What happens in a market if the current price is above the equilibrium price? What happens if the current price is below the equilibrium price?

> A student in a principle of economics course makes the following remark: The economic model of perfectly competitive markets is fine in theory but not very realistic. It predicts that in the long run, a firm in a perfectly competitive market will earn no

> According to an article in the Wall Street Journal, rapid growth in consumer demand for natural and organic food helped make the Whole Foods supermarket chain very profitable. But according to that same story, “its accomplishment drew broad new competiti

> In panel (b) of Figure 12.9 on page 426, Sacha Gillette reduces her output from 40,000 to 25,000 dozen eggs when the price falls to $1.75. At this price and this output level, she is operating at a loss. Why doesn’t she just continue ch

> A column in the New York Times notes that many economists “support Pigovian taxes because, in some sense, we are already paying them.” In what sense might consumers in a market be “paying” a Pigovian tax even if the government hasn’t imposed an explicit

> The following questions are about long-run equilibrium in the market for cage-free eggs. a. As described in the chapter opener, was the market for cage-free eggs in 2015 in long run equilibrium? Briefly explain. b. What would we expect to happen to the p

> Are imports and exports now a smaller or larger fraction of GDP than they were 40 years ago?

> A study analyzed a pharmaceutical firm’s costs to develop a prescription drug and receive government approval. An article in the Wall Street Journal describing the study noted that included in the firm’s costs was “the return that could be gained if the

> Suppose an assistant professor of economics is earning a salary of $75,000 per year. One day she quits her job, sells $100,000 worth of bonds that had been earning 3 percent per year, and uses the funds to open a bookstore. At the end of the year, she sh

> Discuss the shape of the long-run supply curve in a perfectly competitive market. Suppose that a perfectly competitive market is initially at long-run equilibrium and then there is a permanent decrease in the demand for the product. Draw a graph showing

> Would a firm earning zero economic profit continue to produce, even in the long run?

2.99

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