Answer: Option (b) is correct.
Explanation:
Given that,
short-run equilibrium output = 10,000
income-expenditure multiplier = 10
potential output (Y*) = 9,000
Expenditure multiplier =
10 =
Slope of AE function = 0.9
slope of AE = MPC (1-t) t =0,
MPC = 0.9
Delta Y (DY) = 1000
government expenditure multiplier ⇒ = 10
Delta G =
=
= 100
Government purchases must be Decrease by 100.
The economic profit is calculated by,
Economic Profit = Total Revenue (TR) – ( Explicit Cost + Implicit Cost)
Total Revenue
Explicit Cost (Cost of land , Labor , capital) per acre = Machinery Ownership costs + Land Charge + overheads
Explicit Cost for 500 acres
Implicit Costs are not given
Economic Profit
Hence the economic profit is .
The difference between the revenue generated by the sale of an output and the prices of all inputs used, as well as all opportunity costs, is known as an economic profit. Possibility expenses and explicit costs are subtracted from earned revenues to establish economic profit. Economic profit is necessary because it helps examine an industry's financial and economic progress.
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