Changes

'''Introductory''':

'''Introductory''':

1. The best friend of free enterprise is ___________.

1. The best friend of [[free enterprise]] is ___________.

'''Competition.'''

'''[[Competition]].'''

2. Describe how you can use competition to help motivate yourself to accomplish a goal.

2. Describe how you can use competition to help motivate yourself to accomplish a goal.

'''Trying to be the best in the class, or simply improve over how you did in a prior class or earlier homework or exam.'''

'''Trying to be the best in the class, or simply improve over how you did in a prior class or earlier homework or exam.'''

3. Until Conservapedia.com began, Wikipedia.com did not have any competition.  What often happens to a firm or service when there is no competition?  Why?

3. Until [[Conservapedia]].com began, [[Wikipedia]].com did not have any competition.  What often happens to a firm or service when there is no competition?  Why?

'''Without competition, motivation and quality decline.  Inefficiency increases.  People have less of a reason to try.  A famous slogan of the car rental company Avis was, "We're number two.  We try harder.'''

'''Without competition, motivation and quality decline.  Inefficiency increases.  People have less of a reason to try.  A famous slogan of the car rental company Avis was, "We're number two.  We try harder.'''

'''Intermediate''':  4. Suppose you own a widget factory having fixed costs of $10,000. In addition to the $10,000, you have variable costs of $2,500 for each widget you make.  Worse, the factory can make only 3 widgets in an entire year!  Your widget sells for $5,000.  Someone offered to buy your factory for $10,000. Should you sell it?

'''Intermediate''':  4. Suppose you own a widget factory having fixed costs of $10,000. In addition to the $10,000, you have [[variable cost]]s of $2,500 for each widget you make.  Worse, the factory can make only 3 widgets in an entire year!  Your widget sells for $5,000.  Someone offered to buy your factory for $10,000. Should you sell it?

'''It depends on what portion of the fixed costs are recurring.  There is a profit of $2,500 on every widget that is made, or $7,500 for each year.  If less than $2,500 of the fixed costs are recurring on an annual basis (e.g, rental payments), then you would have an annual profit.'''

'''It depends on what portion of the fixed costs are recurring.  There is a profit of $2,500 on every widget that is made, or $7,500 for each year.  If less than $2,500 of the fixed costs are recurring on an annual basis (e.g, rental payments), then you would have an annual profit.'''

'''Yes, you probably should agree.  Even though your company is not making profits on this, Wal-Mart is paying for your costs (including salaries and advertising).'''

'''Yes, you probably should agree.  Even though your company is not making profits on this, Wal-Mart is paying for your costs (including salaries and advertising).'''

6. Suppose you own a company that has marginal cost (MC) = $9, average total cost (total cost divided by total output) = $11, average variable cost (average cost of variable inputs, like labor and materials) = $5 and price of the sold good (P) = $8.  Should you make any additional goods at these numbers?  Should you shut down your company?

6. Suppose you own a company that has [[marginal cost]] (MC) = $9, average total cost (total cost divided by total output) = $11, average variable cost (average cost of variable inputs, like labor and materials) = $5 and price of the sold good (P) = $8.  Should you make any additional goods at these numbers?  Should you shut down your company?

'''Because MC>P, don't make any more goods.  But don't shut down the company either, because P exceeds average variable cost.  The owners are doing better than if they shut down.'''

'''Because MC>P, don't make any more goods.  But don't shut down the company either, because P exceeds average variable cost.  The owners are doing better than if they shut down.'''