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Essentials of Economics 4th Edition, 2015 ISBN-13: 9780133543391 Author(s): Glenn Hubbard

Essentials of Economics 4th Edition, 2015 ISBN-13: 9780133543391 Author(s): Glenn Hubbard

An economic ________ is a simplified version of some aspect of economic life used to analyze 
an economic issue. 
a. variable b. market c. model d. trade-off 
Scenario 1-2 
Suppose a hat manufacturer currently sells 2,000 hats per week and makes a profit of $5,000 per week. The plant owner observes, “Although the last 300 hats we produced and sold increased our revenue by $1,000 and our costs by $1,100, we are still making an overall profit of $5,000 per week so I think we’re on the right track. We are producing the optimal number of hats.” 

    Refer to Scenario 1-2. Had the firm not produced and sold the last 300 hats, would its profit be higher or lower, and if so by how much?
        Its profit will be $1,100 higher. 

        Its profit will be $1,000 lower. 

        Its profit will be $100 lower. 

        Its profit will be $100 higher. 

    The term market in economics refers to:
        a place where money changes hands. 

        a legal institution where exchange can take place. 

        a group of buyers and sellers of a product and the arrangement by which they come 
together to trade. 

        an organization which sells goods and services. 

    Scenario 1-3
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, “Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we’re on the right track. We are producing the optimal number of t-shirts.” 

    Refer to Scenario 1-3. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts?
        marginal cost 

        explicit cost 

        operating cost 

        Any of the above terms are correct.

Johnson 09-Nov-2017

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