According to the kinked demand curve model, if there is a modest increase in a firm's variable production costs, what is likely to happen to the firm's profit-maximizing level of output and the amount of profit earned by the firm? Why?
What will be an ideal response?
Given the way the kinked demand curve model is constructed, there is a discontinuity in the firm's marginal revenue function at the equilibrium price and output level. As a result, marginal cost can vary by some amount and leave the profit-maximizing level of output unaffected. If this is the case and variable costs increase, the firm's total revenues will be unaffected but its total costs of production will be higher. Thus, the firm's price and output levels remain the same, but total profit decreases.
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Monetarists view the use of monetary policy to fine-tune the economy as
A) unnecessary because the private sector is inherently stable. B) always inflationary. C) less predictable than fiscal policy. D) impossible because the Fed does not have the tools to control the money supply.
If a greater portion of income is distributed to those in the highest income quintile, the
A. Gini coefficient is less than zero. B. Lorenz curve sags below the diagonal line of absolute equality. C. Lorenz curve is a straight line. D. Line of equality sags below the Lorenz curve.
Total banking system reserves equal $58.65 billion. The total banking system checkable deposits subject to reserve requirements are $510 billion. The required reserves are $51 billion. What is the required reserve rate, and what is the excess reserve rate?
What will be an ideal response?
Answer the following statement(s) true (T) or false (F)
1. A country or region’s comparative advantage is based on its natural resources and therefore does not change over time. 2. Because cocaine and stolen identity information are illegal, there are no markets for these items. 3. The market price reflects the value buyers place on a good or service and the cost to society of producing it. 4. Government price controls effectively endow the market price with meaning for buyers and sellers.