A purely competitive firm's output is currently such that its marginal cost is $4 and marginal revenue is $5. Assuming profit maximization, the firm should:
A. raise its price and cut output.
B. leave price unchanged and cut output.
C. cut its price and raise its output.
D. leave price unchanged and raise output.
Answer: D
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A lawyer once said, "I could paint my house and fix my plumbing if I just had some technical training and good tools. But, I would rather hire a painter and a plumber." When it comes to fixing a leaking sink, the plumber:
a. d and e. b. charges more per hour than the lawyer does. c. charges less per hour than the lawyer does. d. is more efficient. e. has a comparative advantage.
By raising the legal reserve requirement, the Fed
a. increases the money supply b. decreases the discount rate c. buys bonds through open market operations d. seeks to influence fiscal policy e. restricts banks' abilities to make loans
Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good,
a. buyers and sellers will each share 50 percent of the burden, regardless of the elasticities of the demand and supply curves. b. sellers will bear a larger share of the tax burden. c. the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government. d. buyers will bear a larger share of the tax burden.
Distinguish the short run from the long run. Generally, what causes costs of production to vary with output in the short run? What generally causes costs of production to vary in the long run?
What will be an ideal response?