Suppose Alex owns a business making quilts that generates $7,000 a month in revenue. Each month, Alex spends $1,600 on fabric and other sewing materials, and he pays his two employees a combined total of $4,000 per month (they each earn $2,000). Alex makes his quilts in a workshop he has set up in his basement. If Alex did not own the quilt business, he would work as a yoga instructor earning $2,200 per month, and he would use the basement as a TV room, an option he would value at $60 per month. a. What is Alex's accounting profit? Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-). $ b. What is Alex's economic profit? Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-). $ c. If the market for quilts is perfectly competitive, and other quilt producers face the same costs as Alex, then what would you expect to happen to both the number of firms making quilts and the equilibrium price of quilts in the long run. Briefly explain. multiple choice You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to rise. You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price to fall. You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to rise. You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price to fall.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter16: Bargaining

Section: Chapter Questions

Problem 8MC

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Suppose Alex owns a business making quilts that generates $7,000 a month in revenue. Each month, Alex spends $1,600 on fabric and other sewing materials, and he pays his two employees a combined total of $4,000 per month (they each earn $2,000). Alex makes his quilts in a workshop he has set up in his basement. If Alex did not own the quilt business, he would work as a yoga instructor earning $2,200 per month, and he would use the basement as a TV room, an option he would value at $60 per month.

a. What is Alex's accounting profit?

Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-).

b. What is Alex's economic profit?

Instructions: Enter your answer as a whole number. If you are entering a negative number, be sure to include a negative sign (-).

c. If the market for quilts is perfectly competitive, and other quilt producers face the same costs as Alex, then what would you expect to happen to both the number of firms making quilts and the equilibrium price of quilts in the long run. Briefly explain.

multiple choice

You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to rise.
You would expect firms to exit the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price to fall.
You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to fall and the equilibrium price to rise.
You would expect firms to enter the industry. This would lead the equilibrium quantity of quilts to rise and the equilibrium price to fall.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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