Consider the Following Budget Constraint

question 13

Multiple Choice

Consider the following budget constraint.Dennis spends all his money on sweaters and sweatshirts.If the price of sweaters is $15,what is the price of sweatshirts?

• A) $5.
• B) $7.
• C) $15.
• D) $21.
• E) None of the above.

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Definitions:

Fixed Resource

An asset or resource in production that cannot be easily increased or decreased in the short term, such as land or machinery.

Diminishing Returns

The principle that says as more of a variable input is added to a fixed input, the incremental gain in output will eventually decrease.

Normal Profits

The level of profit that is necessary to cover the costs of a firm, including the opportunity costs of capital, ensuring the firm remains in business.

Implicit Cost

The opportunity cost equal to what a firm must give up in order to use resources it already owns, without paying rent or purchasing them.