Compare the advantages and disadvantages of marginal and average cost pricing for natural monopolies.
What will be an ideal response?
Marginal cost is the correct cost to use in measuring the resources that go into producing additional output. But for firms that enjoy large economies of scale, MC lies below AC, so the firm loses money. AC pricing can allow the firm to earn a normal rate of return. The determination of AC is difficult if the firm produces multiple products. More fundamentally, price based on average cost does not lead to efficient consumption decisions, since P > MC.
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In the dynamic aggregated demand and aggregate supply model, if AD shifts faster than AS,
A) deflation occurs. B) stagflation occurs. C) inflation occurs. D) disinflation occurs.
Indicate below the activity that the IMF is not involved in
A) financing countries' BOP deficits through temporary loans B) overseeing exchange rate policies C) monitoring BOP imbalances D) issuing a composite currency called ECU
Ten individuals have $100 and identical preferences for picnics, p, and kayak trips, k, where U(p, k) = k0.5p0.5. The price of picnics is $5 and the price per kayak trip is $ 10
What is the shortage/surplus in the market when the supply of picnics totals 120? A) There is a surplus of 20. B) There is a shortage of 20. C) The market is in equilibrium. Therefore, there is no surplus/shortage. D) There is not enough information to answer this question.
Many late 19th century managerial innovations were first developed by
a. the automobile industry. b. the railroads. c. the textile industry. d. the iron and steel industries.