A Model Is Used to Explain Economic Behavior

question 50

Multiple Choice

A model is used to explain economic behavior. Therefore

• A)the assumptions must be complex while the model itself is simple.
• B)the model must be complex.
• C)the model must be simple.
• D)the model can be either simple or complex so long as it explains economic behavior.

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Definitions:

Economic Profit

The difference between the total revenue earned by a firm and the total cost of inputs, including both explicit and implicit costs.

Implicit Costs

The opportunity costs of utilizing resources owned by the firm that could have been employed for other purposes.

Explicit Costs

Direct, out-of-pocket payments for resources employed in the production of goods or services, easily identified and measured.

Capital Intensive

A description of industries or businesses that require large amounts of capital investment compared to labor.