Answer the following statements true (T) or false (F)
1) The meaning of product quality is dependent on the type of product.
2) Product quality is likely to be the same for a frozen pizza firm and a paper towel firm.
3) In general, consumers' valuation of additional units of quality increases as more units of quality are included in a product.
4) In general, the product quality marginal revenue curve is downward sloping and the product quality marginal cost curve is upward sloping.
5) The quality profit-maximization rule states managers should produce the level of quality that sets the marginal revenue from an additional unit of quality equal to the marginal cost of producing the additional unit of quality.
1) TRUE
2) FALSE
3) FALSE
4) TRUE
5) TRUE
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What relationship exists between marginal revenue and the elasticity of demand? Use this relationship to explain how a monopoly can increase its profit if demand is inelastic.
What will be an ideal response?
The real-balance effect indicates that at higher price levels
A) the real value of money holdings increase, resulting in increased saving. B) the purchasing power of money will increase. C) the real value of money holdings fall, resulting in decreased spending. D) the value of the dollar will increase.
In the standard Becker model of discrimination, each firm is associated with a discrimination coefficient of d > 0 and acts as if the wage paid to blacks is wB(1 + d) where wB is the actual hourly wage paid to blacks. Assume whites and blacks are equally productive. The going wage for whites is $16 per hour while the going wage for blacks is $10 per hour. Which of the following will characterize the labor market equilibrium when some employers have discriminatory preferences against hiring black workers?
A. An employer with a discrimination coefficient of 2.2 will hire only black workers. B. All firms will earn the same amount of profit regardless of their discriminatory preferences. C. All discriminating employers will hire only white workers. D. An employer with a discrimination coefficient of 0.8 will hire only white workers. E. Any employer with a positive discrimination coefficient will hire only white workers.
The Great Recession of 2007-09 illustrated the situation where a negative demand shock occurred and:
A. Prices adjusted but the output level was inflexible B. The economy's overall price level was very flexible C. The economy's overall price level was "sticky" D. Prices and production were both "sticky" or inflexible