Question

In: Economics

Indicate whether the following statements are TRUE or FALSE and explain your answer fully, but succinctly....

Indicate whether the following statements are TRUE or FALSE and explain your answer fully, but succinctly. Without an adequate explanation, you will get no credit.

a)An efficient outcome is desirable because it allows us to make Pareto improvements.

b)Unlike a consumer, a firm does not face a budget constraint.

c)If the wage rate increases, then those who work have a stronger incentive to supply labor.

Solutions

Expert Solution

a)

True statement: Efficient outcome is achieved where the output is maximum and the firm produces at the point where P= MC. It would not be efficient to operate beyond this limit. Thus, An efficient outcome is desirable because it allows us to make Pareto improvement.

b)

False statement: Firms also face the resource constraints, Firms have limited resources and firms have to use these resources optimally. Total outlay is maximum expenditure a firm can incur.

c)

True statement: The wage rate and supply of labor are positively related. An increase in the wage increases the opportunity cost of leisure, thus labor supply will rise.


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