Constant returns to scale is an increase in output by the same percentage as an increase in all inputs. On the other hand, if the output increases more than the percentage increase in inputs, we call this ‘increasing returns to scale’ or ‘economies of scale’. In addition, if the output increases less than the percentage increase in inputs, then there are ‘decreasing returns to scale’ or ‘diseconomies of scale’. The correct answer is B

The additional output produced when a small amount of additional labor is employed with all other inputs remaining the same is defined as marginal product of labor.

The amount of labor demand at a given wage is affected by some factors: market price, technology, prices of other factors of production and number of firms in the market. Changes in population is one of the factors that affect the demand of labor supply. The correct answer is D.

One of the factors of production, the capital stands for machinery, equipment, buildings and other tools which are used in the production of goods and services. In economics, as a factor of production, the capital refers to the physical capital, not to the financial capital. Although money is not a factor of production, firms often use credits to buy or hire the capital they use for production, and pay interest in return. The correct answer is A.

Nash equilibrium is a situation in which each firm chooses the best response strategy given the strategies chosen by other firms. This equilibrium concept is named after the economist and Nobel laureate John Nash. Note that this is a non-cooperative equilibrium concept, in the sense that firms are acting independently and not in cooperation with each other. 

Production possibilities frontier is a graph that shows the combinations of output that a firm or a society can possibly produce using the available production technology and the given amount of inputs. Therefore, the Production possibilities frontier is a very useful analytical tool to illustrate the basic economic concepts such as scarcity, efficiency, tradeoffs and opportunity cost. Of course, whole economies in real life produce thousands of goods and services. However, our graph in the question is a simplified form as if there were only industries where all resources available to the economy are used. The points II, III, and IV show that the more manufactured goods are produced, the less agricultural products are produced, and vice versa. This shows that this country uses its all resources fully and efficiently. The point V, on the other hand, might show desirable production level, but it would be impossible to reach there with the given available resources and technology. The point I indicates a production level that this country would definitely avoid because this point shows that it is either using its scarce resources fully but inefficiently, or it is leaving some of the resources idle. The correct answer is A.

Positive statements in economics are statements that intend to describe how things are and how things actually work. However, a normative statement is a prescriptive statement, like the ones expected to be made by a policy adviser, involving normative judgements and prescriptions about how the world should be. The answer is A.

The Difference Between Economic and Accounting Profit

Profit is simply the difference between total revenue and total cost. However, in light of the discussions above, it should be clear that “profit” for an economist is not exactly the same as calculated by an accountant because the concept of cost is different. An accountant looks at monetary revenues and explicit monetary outlays and calculates profit according to the generally accepted principles of accounting. That is, the difference between total revenue and accounting costs—explicit or out-of-pocket costs. The profit that is calculated by an accountant is named the accounting profit.

Accounting Profit = Total Revenue – Accounting Cost

The resources that we can use to satisfy our needs and desires are available only in limited quantities. They fall short of the amounts required to fully satisfy all our needs and desires. This is true not only for individuals but also for all societies. Scarcity refers to society’s inability to produce all the goods and services people desire to have due to resource  limitations. This give rise to a choice problem: How should individuals and societies decide on their priorities and manage their scarce resources accordingly with the priorities they set.

In economics, decision makers make decisions by thinking at the margin. Thinking at the margin requires recognizing the need to make decisions by evaluating the costs and benefits of marginal changes. It means that a decision maker should compare his/her action’ marginal benefit and marginal cost. Any action should be undertaken only if the benefit is greater than the cost. If people make choices by comparing cost and benefits, then their decisions may be altered by altering the cost or benefits of their actions. People do respond to positive and negative incentives. When there is a significant increase in the price of gasoline, for instance, demand for public transportation and the demand for smaller, more fuel-efficient cars increase. The term a market failure occurs when the market falls short of allocating resources efficiently. This factor would not explain the reason for that decision.

As it can be understood from the information given, the correct answer is “C”.

Oligopoly is a market structure with few firms. Each firm in the market produces a large share of the total market quantity and hence can influence the market price. The correct answer is B.

Market is an institution that facilitates economic interactions among buyers and sellers. Therefore, the correct option is A.

The sum of all variable costs a firm pays for variable inputs is called the total variable cost (TVC). Since labor is the only variable input for our representative firm, its total variable cost will be the wage rate times the amount of labor used. Because the firm can only hire more labor to produce more output, the firm’s total variable cost will grow as the output produced increases.

Total Variable Cost (TVC) = Wage (w) x Labor (L)

There are a number of reasons for changes or shifts in demand curve: tastes and preferences, income, normal goods, inferior goods, prices of related goods, substitute goods, complimentary goods, expectations and number of buyers. The number of sellers is effective in changes in supply curve. The correct answer is E.

Demand curve facing an existing monopolistic firm decreases and shifts to the left as new firms enter into the market. The Correct Answer is D.

There are no barriers in perfect competition. The correct answer is D.

The monopolist’s average revenue from sales equals to the price. Therefore, the correct option is B.

The objective of a firm that produces a good or service is to maximize its profit, which is the difference between total revenue and total cost. Therefore, the correct option is E.

Entrepreneurship is a human resource that brings together natural resources, labor and capital and organizes them to produce new goods or services.

Farmers markets, street food vendors, and the market for unskilled labor compete in perfect competition. On the other hand, the markets for cosmetics, restaurants, and beverages are examples of monopolistic competition. A monopsony has only one buyer for a particular good or service, giving that buyer significant power in determining the price of the products produced. The State Airports Authority, the Turkish State Railways and the local water supplier are examples of monopolies. Oligopoly is a market structure in which a few large firms compete. Computers, aircraft manufacturing, the automobile industry and agro-businesses are examples of oligopolistic markets. The correct answer is E.

Monopoly is a market structure with only one producer. Therefore, this producer will not act as a price taker but will be a price setter. The correct answer is A.