Business Behaviour & the Labour Market Quiz

Answer: Profit maximisation. 

Explanation: In a perfectly competitive market, firms are price takers and aim to maximise their profits by producing at the level where marginal cost equals marginal revenue (MC = MR). 

Answer: Normal profit is the minimum level of profit necessary for a firm to remain in operation in the long run. It occurs when total revenue equals total costs, including both explicit and implicit costs. 

Answer: Economic profit includes both explicit and implicit costs, whereas accounting profit only considers explicit costs. Economic profit is typically lower than accounting profit. 

Answer: Economies of scale refer to the cost advantages that firms experience as they increase their scale of production, leading to a decrease in average costs per unit. 

Answer: A monopoly is a market structure where a single firm is the sole producer of a product with no close substitutes, giving it significant market power to set prices. 

Answer: While a monopoly is a single seller in a market, a monopsony is a single buyer of a particular factor of production, such as labour. 

Answer: MRP of labour is the additional revenue generated from employing one more unit of labour. It is calculated as the marginal product of labour multiplied by the marginal revenue. 

Answer: The labour supply curve shows the relationship between the wage rate and the quantity of labour that workers are willing to supply. It typically slopes upwards, indicating that higher wages attract more workers. 

Answer: Monopsony power occurs when a single employer has significant control over the wage rates and employment conditions in a particular labour market, often leading to lower wages and reduced employment levels. 

Answer: Excess capacity refers to a situation in monopolistic competition where firms produce less than the output level that would minimise average total costs, due to product differentiation and some degree of market power. 

Answer: Fixed costs are business expenses that do not change with the level of output produced, such as rent, salaries, and insurance. 

Answer: Average revenue is calculated by dividing total revenue by the quantity of output sold. In perfect competition, AR equals the price of the product. 

Answer: The shutdown point occurs when a firm's total revenue is equal to its variable costs. Below this point, the firm should cease production in the short run to minimise losses. 

Answer: Supernormal profit, also known as abnormal profit, occurs when total revenue exceeds total costs, including both explicit and implicit costs. It indicates that a firm is earning more than the normal profit level. 

Answer: Barriers to entry are obstacles that prevent new firms from entering a market. In a monopoly, high barriers to entry, such as high startup costs or legal restrictions, protect the monopolist from potential competitors.