Question 1

In the long run, which of the following is most likely for a firm in a competitive market?

Group of answer choices

A. zero accounting profits but positive economic profits

B. zero accounting profits and zero economic profits

C. positive accounting profits and positive economic profits

D. positive accounting profits but zero economic profits

Question 2

Mean reversion of profits for competitive industries suggests that

Group of answer choices

A. when there are profits, the competition of new firms will reduce that profit; and when there are losses, firms going out of business will reduce profits for businesses that remain

B. when there are profits, the competition of new firms will reduce that profit; and when there are losses, firms going out of business will increase profits for businesses that remain

C. profits will tend to increase over time

D. when there are profits, the competition of new firms will increase that profit; and when there are losses, firms going out of business will reduce profits for businesses that remain

Question 3

Mohammad is an accounting major.Upon graduation, he is not sure if he should accept a job offer in accounting from a bank or a law firm.He wants to work in whichever industry expected to have higher profits so he can earn a higher income.According to the indifference principle,

Group of answer choices

A. he should be indifferent between a higher income and a more secure job

B. accountants will earn the same as other professions because of the mean reversion of wages and salaries

C. accountants will earn the same amount in both industries because labor is mobile

D. entry of new firms seeking profit, while other firms go out of business if experiencing losses will ensure that the profitability of both industries will be the same

Question 4

Mohammad earns $40,000 per year as an accountant for a bank in Columbus Mississippi.He learns that a branch of the bank is opening in Honolulu Hawaii, and the accounting position at that location pays $35,000.Keeping in mind that the cost of living is not lower in Hawaii (in fact, it is higher), why might the salary be lower in Hawaii than Mississippi?

Group of answer choices

A. wages and salaries exhibit mean reversion over time

B. labor markets are not competitive and labor is not mobile

C. living in Hawaii compensates for the lower salary

D. banks in Hawaii must be more competitive than those in Mississippi

Question 5

A friend of yours opened a restaurant with a target market of college students.The restaurant sells cold pizza with ranch dressing on the side, and is open very late at night.After earning a large profit during the first semester of school, your friend wants to franchise to other college towns, and approaches you as an investor.Why should you be concerned that the profits of this first semester will not persist into the future?

A. because marginal revenue cannot be greater than marginal cost

B. because other restaurants can easily copy this idea

C. because of the indifference principle, customers should be indifferent between the various restaurants

D. because machinery (pizza ovens and refrigerators) in this industry are not mobile, so expansion to new markets will be difficult