Carefully explain if the following statements are true, false, or uncertain
a. If average cost is increasing, marginal cost must be increasing.
b. If there are diminishing returns, the marginal cost curve must be positively sloped.
c. Marginal costs decrease as output increases because the firm can spread fixed costs over more units.
a. True. If average cost is increasing, marginal cost must be above average cost, so marginal cost must be increasing.
b. True. If there are diminishing returns, each worker produces less than the one before him. Thus each unit must be getting more expensive (because you pay workers the same amount but they produce less).
c. False. Marginal costs have nothing to do with fixed costs. The statement would be correct if it was about average costs.
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Under conditions of perfect competition, an individual producer
a. always maximizes output. b. operates where MR equals MC. c. never suffers a loss. d. operates where MR is greater than MC.
The interest rate that banks charge each other for short-term loans is the
a. discount rate b. prime rate c. treasury rate d. federal funds rate e. interbank rate
If a balanced budget were required in 2008, the government would have been required to cut spending and increase taxes
a. True b. False Indicate whether the statement is true or false
The most likely reason politicians don't appear to economists to look at policy issues in a cost/benefit framework is that:
A. politicians are focusing on the long-run effects of policies rather than the short-run effects. B. politicians don't make rational decisions. C. politicians are not economists. D. the marginal costs and marginal benefits facing the politician are not necessarily the ones facing society.