Question

Ben is a producer in the perfectly competitive market for calzones. No matter what he produces, Ben must pay rent for the factory he uses. The amount of wages he pays employees depends only on how much demand there is for a calzone, with the workers being employed on a part-time, casual basis. Assume rent, wages, and the ingredients for making calzones are the only costs Ben incurs.

Select the item from the list provided to make the following statements true.

The wages Ben pays an employee is an example of a __________.

If the market price for calzones is below Ben's minimum average total cost but above his minimum average variable cost of production, then Ben is making an __________.

In order to profit maximise (or to loss minimise), Ben should produce a quantity of calzones where his _______ equals the market price for calzones.

1.

economic loss

2.

fixed cost

3.

minimum average variable cost

4.

marginal cost

5.

average total cost

6.

economic profit

7.

market price

8.

average variable cost

9.

total cost

10.

average fixed cost

11.

variable cost

12.

minimum average total cost

Answer 1

1) Wages paid to worker is an variable cost as it change with the requirements of production. Wages varies from person to person depending on their skill and experience.

Answer: Variable cost

2) If the marjma price is below average total cost and greater than average variable cost it means that firm is not generating any profit which means the firm is running under loss. The loss is an economic loss to the owner as he is not getting enough revenue from the product to generate profits

Answer: Economic loss

3) When Marginal cost equals the marginal revenue than firm generates profit. At that point maximum profit is earned.

Answer: Marginal cost