4)
Tom is considering whether he’d like to start up a cattle ranch or start up his own law firm. He expects the cattle ranch to bring in revenues of $2 million a year and to incur yearly explicit costs of $500,000 in feed, $1 million in labor, and $300,000 in taxes. His law firm will be expected to make $4 million in revenues per year and have yearly explicit costs of $1,500,000 in office materials, $2 million in labor, and $100,000 in other miscellaneous explicit costs. Assuming all explicit costs have been listed, what is the expected economic profit of the law firm?
Group of answer choices
a -200,000
b 200,000
c 600,000
d 400,000
7)
Which one of the following is not true if a firm is operating with increasing marginal returns?
Group of answer choices
a Producing an additional unit will increase total costs by more than the previous unit
b Each additional unit of output requires less additional variable inputs than the previous unit of output
c The marginal cost of each unit will decrease as output increases
d Total cost will increase as output increases
e Total variable costs will increase as output increases, but at a decreasing rate
4) option D is correct. Economic profit from the cattle ranch (difference between total revenue and total cost) is 2 million - 1.8 million = 200000. Economic profit from the law firm = 4 million -3.6 million = 400000. Since economic profit is greater from the law firm we will consider this opportunity
7) option A is incorrect. Increasing marginal returns means decreasing cost. total cost increases but at a decreasing rate which means each additional unit of output increases the cost buy a lesser value than the previous one.
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