The New Owner of a Beauty Shop Is Trying to Decide

question 57

Multiple Choice

The new owner of a beauty shop is trying to decide whether to hire one, two, or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services, and she has estimated demand in three categories, low, medium, and high.
If she feels the chances of low, medium, and high demand are 50 percent, 20 percent, and 30 percent respectively, what are the expected annual profits for the number of beauticians she will decide to hire?

• A) $54,000
• B) $55,000
• C) $70,000
• D) $50,000
• E) $154,000

Comprehend how firms in competitive markets make production decisions based on marginal analysis.

Recognize the conditions under which firms in purely competitive markets will achieve economic profits, break-even, or incur losses.

Understand the short-run and long-run operational decisions facing firms, including shutdown and exit decisions.

Evaluate the implications of market structures on firm behavior and market outcomes.

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Definitions:

Cognitive Processing

The mental activities involved in the acquisition, storage, manipulation, and retrieval of information, encompassing processes such as perception, memory, and reasoning.

Savant Syndrome

A condition where a person with significant mental disabilities demonstrates certain abilities far in excess of average.

Abstract Concepts

Ideas that do not have a physical, tangible reality and are often complex, such as justice, love, or freedom.

Factor Analysis

A statistical method used to describe variability among observed, correlated variables in terms of a potentially lower number of unobserved variables called factors.