23) Lisa opens an ice cream shop in Gainesville, but it turns out that the Direc

Question

23) Lisa opens an ice cream shop in Gainesville, but it turns out that the Director is her only customer. Every week, her total revenue (all from the Director) is $300. Her weekly fixed costs (the rent, machines, etc.) are $300. Her weekly variable costs (the ice cream, napkins, etc.) are $200. Lisa ____. A) incurs an economic loss by remaining open and should close down in the short run. B) incurs an economic loss by remaining open, but should remain open in the long run. C) incurs an economic loss by remaining open, but should remain open in the short run. D) earns a normal profit by remaining open, but should close down in the long run. E) None of the above answers are correct. 24) The demand curve for low-skilled labor lies to the left of the demand curve for highskilled labor because A) there are more high?skilled workers than low?skilled workers. B) high?skilled workers require more compensation than low?skilled workers. C) high?skilled workers are more productive than low?skilled labor. D) firms do not see any difference between high?skilled labor and low?skilled labor. 25) Sarah’s Garage Cleaning is a perfectly competitive firm that currently cleans 40 garages a week. Sarah’s marginal cost is $35, her marginal revenue is $40, and her average total cost is $40. Sarah is A) maximizing her profit and is earning an economic profit. B) not maximizing her profit and is making a normal profit. C) maximizing her profit and is earning a normal profit. D) might be maximizing her profit and is incurring an economic loss. E) None of the above answers are correct.

Explanation / Answer

23.  C) incurs an economic loss by remaining open, but should remain open in the short run.

Profit = 300-300-200 = -200

Since she is able to cover her variable costs fully and part of her fixed costs in the short run she should continue her operations.

24. C) high?skilled workers are more productive than low?skilled labor

This is because high skilled workers have more marginal revenue product and they can perform more tasks and more efficiently than the low skilled workers.

25. B) not maximizing her profit and is making a normal profit.

This is so because she can increase her profit by increasing her number of garages she cleans.

Profit = (40*40) [total revenue] - (40*40) [total cost] = 0

Please like my answer.

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