Every firm eventually faces a point in production after which employing extra units of labor yields smaller and smaller increases in output. This fact is called “The Law of Diminishing Marginal Product of Labor”.

We can calculate the profit by taking the total cost out of the total revenue (Profit  = Total Revenue  – Total Cost). However, the table in the question does not give us the information about the total revenue. Therefore, we, first, need to get the total revenue, which can be calculated by multiplying the price by the quantity (Total Revenue  = Price  x Quantity). Therefore, the total revenue would be (50 x 1000 = 50.000) 50.000 TL. As profit is the subtraction of the total cost from the total revenue, the profit would be (50.000 – 35.000 = 15.000) 15.000 TL. The correct answer is D.

The Marginal cost (MC) is the cost of producing the last unit of output. It tells us how the total cost (and the total variable cost) changes as the output changes. The marginal cost is calculated as the increase in the total cost (or total variable cost) divided by the increase in the output. Marginal cost measures how fast or slow the total cost and the total variable cost increase. The slower the increase, the lower the marginal cost. Also, when the marginal cost is lower than the average cost and the average variable cost, it pulls them down as the output increases. Conversely, when the marginal cost is higher than both average costs, it pulls them up as the output becomes larger. The correct answer is D.

The figure shows how wages and the amount of labor hired in the market adjust to this. At the beginning, the market is at equilibrium with w* wage and L* amount of labor hired. The rightward shift in labor demand creates an excess demand for labor in the market (L*2 -L*), causing wages to rise all the way up to the new market-clearing wage, w1. As the wage level increases, excess demand disappears. In brief, it indicates that an increase in labor demand increases the equilibrium wage and employment. The correct answer is E.

A firm needs to bring inputs together to produce goods or services. These inputs are called Factors of Production. Classical economists identified three widely defined groups of the factors of production: Labor, capital and land. The correct answer is D.

In many cases, firms sell the same good to different customers at different prices. This practice is called price discrimination.

When the monopolist charges the same price for each unit sold to each consumer. This is called uniform pricing.

What is Cost?

Cost is ordinarily understood to be the amount we pay or the price we are charged for a good or service we get. However, economists’ definition of cost is different than what the meaning of cost in daily use.  When economists think of cost, they add the opportunity cost, which is the next best alternative given up, to the out-of-pocket costs or explicit expenses. For example, to attend college, you have to pay tuition and fees. These are explicit expenses you have to incur. However, you also give up a substantial amount of time to become a fulltime student. How much would your time be worth in monetary value? Well, it is the sum of wages you would have received if you worked full time instead of attending college. So, the overall or total cost of you attending college is the sum of the explicit expenses you pay, such as tuition and fees, plus the wages you would have earned if you had chosen to work during the time you devote to being a student. Hence, from an economist’s point of view, the cost includes not only the explicit expenses you must pay, but also the monetary value of time, effort and other resources you have to give up. The sum of all these costs is called the economic cost.

Opportunity cost is the best alternative that we give up when we make a choice or a decision.  The correct answer is A.

Labor demand is closely related to Marginal Revenue Product of Labor (MRP_L) which means the extra revenue generated by the last hired unit of labor. A rational, profit-maximizing firm in a competitive industry will keep hiring workers until wage is equal to MRP_L. Labor demand and supply in the market determine the level of wage and employment, with wage increasing or decreasing as needed to close any gap between demand and supply.The answer is D.

Monopolistic competition is a market structure in which there are many firms selling products that are similar but not identical. For example in the market for blue jeans, there aremany producers such as Mavi Jeans, Levi’s, Guess, GAP, LC Waikiki. These are all brand names. Jeans sold by these producers are differentiated according to style, quality, design, etc. Hence consumers do not perceive these brand name jeans as identical. The correct answer is C.

The interest rate is determined by the forces of demand and supply in a market called the loanable funds market in which borrowers (demanders of funds) and lenders (suppliers of funds) encounter. The answer is A.

The law of Demand

The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of that good falls.

The government may give one person or firm the exclusive right to sell some good or service. Private or public (state-owned) monopolies established by the government. For example, in 1970, Turkish Electricity Authority (TEK) was created by the Turkish Government as a state owned and operated monopoly responsible for electricity generation, transmission and distribution. The correct answer is D.

The second and fourth statements are true regarding the long run in production while others are true regarding the short run in production. Therefore, the correct option is C.

Price Elasticity-Total Revenue Relationship with a Linear Demand Curve

For the linear demand curves, price elasticity of demand falls as you move downward along the demand curve. The price elasticity is calculated by using the mid-point approach shows that at points on the demand curve with low price and high quantity, the portion of demand curve is inelastic (elasticity is less than 1) and at points with high price and low quantities the portion of demand curve is elastic (elasticity is greater than 1). At the mid-point of the curve, the elasticity is equal to 1 indicating the unit elastic point of the demand curve.

Market theory, especially the demand and supply theories, analyses how changes in the determinants of demand and supply affect the behaviour of buyers and sellers in market place and simply show the direction of the change in the quantity demanded and/or quantity supplied in response to, say,  change in price or income of the consumer. The correct answer is B.

Goods tend to have more elastic demand in the long-run than the short-run because in the long-run availability of substitutes for buyers is higher than the short-run. For example, when the gasoline prices increase by 30% and the car users cannot respond to this price hike by cutting their car use too much in the short-run but in the long-run the consumers can find alternatives by switching to other energy uses.

A monopoly exists in a market when there are barriers to entry. Consumer demand is not a barrier to entry. Therefore, the correct option is E.