The production of durable goods varies more than the production of nondurable goods because:
A. durables purchases are nonpostponable.
B. durables purchases are postponable.
C. the producers of nondurables have monopoly power.
D. producers of durables are highly competitive.
B. durables purchases are postponable.
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The total social cost of production is equal to
A) external cost minus internal cost. B) internal cost minus external cost. C) external cost plus internal cost. D) internal cost plus opportunity cost.
Return to the situation with the executive from the previous question. Now assume that shareholders cannot observe effort, so cannot specify how hard the executive works in the contract but must induce it through the incentive scheme. Which of the following wage contracts would work out best for shareholders in equilibrium?
a. A flat wage w = 2,500 with no profit share. b. A share of 35% of the gross profits. c. A share of 55% of the gross profits. d. A share of 70% of the gross profits.
Private contracts between parties with mutual interests
a. will reduce the well-being of society. b. will lead to market outcomes in which the public interest is sacrificed for personal gain. c. can solve some inefficiencies associated with positive externalities. d. will create negative externalities.
If the market price is $25, the average revenue of selling five units is
A) $5. B) $12.50. C) $25. D) $125.