Milk costs $2 and the last unit provides $4 in marginal utility. Cheese costs $4 and the last unit provides $2 in marginal utility. Is this an efficient allocation of resources? If so, why? If not, why not?
Allocation is inefficient. Milk is providing more MU per dollar spent than cheese. More resources should go into milk production and less to cheese. With more milk consumption, MU of milk will decrease, while with less cheese consumption, MU of cheese will increase. At equilibrium, perhaps milk's MU will drop to $1.50, while cheese's will rise to $3 . Then the ratio of MU/P = 0.75 for both goods.
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A) short run; enter B) long run; enter C) short run; exit D) long run; exit E) More information about the firms' costs and the price of the product is needed to determine if firms enter or exit the industry.
Which of the following contributes to increasing marginal returns?
A) decreasing implicit costs B) increasing explicit costs C) specialization of labor D) Both answers A and B are correct. E) Both answers A and C are correct.
The imposition of tariffs will help a nation attain which of the following goals?
A) decreased domestic consumer prices B) increased domestic employment C) increased amount and variety of goods available for consumers D) increased competition between domestic and foreign producers E) gains for domestic producers
Collusion:
A. rarely occurs in reality. B. never occurs in reality. C. has not occurred in the last hundred years or so, due to government policy outlawing it. D. is a common problem in reality.