MicroFHess Essay Example | Topics and Well Written Essays - 1500 words

MicroFHess - Essay Example Example: as more and more fertilizers are employed by the famers, production of crops may increase by the same unit of fertilizers employed, ceteris paribus. 3. Economic profit is the difference between revenues received from the sale of output and opportunity cost (Mankiw, 1998). For example, the difference between incomes received from selling a car and forgone alternatives of making that car. 4. Law of diminishing returns states that when other factors are held constant any additional unit of input leads to an increase in output at a declining rate till at a certain point where any additional input leads to a decline in output (Hall and Lieberman, 2010). For example, if more fertilizers are added in the production of wheat the output increases till a certain point when any additional unit of fertilizers added leads to a decline in output of wheat. 5. Marginal product of labour is the additional amount of output that is being produced when a firm decide sto employ additional labour in the production process (Hall and Lieberman, 2010). For example, a firm may produces 10 units of output with a labour of 5 people, and after adding another 5 people output may increases to 20 units. 6. Monopolistic competition. Is a type of market structure with many sellers selling similar but differentiated products whereby each seller has the freedom of setting his or her own selling price (Mankiw, 2011). Example: in the United States numerous sellers differentiate their products and the prices for those products (Mankiw, 2011). 7. Sunk cost refers to the amount of money that has already been spent and can not be recovered (Hall and Lieberman, 2010). For example: Amount of money incurred by investor to start and operate a business. 8. The principal-agent problem refers to a conflict of interest that arises when the agent pursues the same interest as his principal (Mankiw, 2011). Example: car dealer hires an agent to sell his cars to particular