We assume flexible prices in the long run, but whenever it is costly to change prices (menu costs) or when there are long-term contracts for labor or capital:
a. short-run prices tend to be flexible.
b. short-run prices tend to be sticky.
c. long-run prices tend to be sticky.
d. firms have to pay higher costs and therefore have to raise prices.
Ans: b. short-run prices tend to be sticky.
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As a result of the Great Depression, economic thought placed greater emphasis on:
A. international transactions. B. long-run growth. C. short-run fluctuations. D. the problem of inflation.
If the quantity of bananas sold increases by 5 percent when the price decreases by 10 percent, the price change occurs in the
A. bottom half of the downward-sloping straight-line demand curve and total revenue decreases from this price change. B. bottom half of the downward-sloping straight-line demand curve and total revenue increases from this price change. C. top half of the downward-sloping straight-line demand curve and total revenue decreases from this price change. D. top half of the downward-sloping straight-line demand curve and total revenue increases from this price change.
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q2. Your firm's maximum profits are:
A. 85. B. 125. C. 100. D. 250.
Typical goals for fiscal policy are
A. high employment and price stability. B. running high deficits and raising consumer prices. C. high prices for consumers and low prices for businesses. D. increasing the money supply so the government can spend more.