Suppose buyers in the used car market are willing to pay $3,500 for a plum (high-quality) used car and $1,500 for a lemon (low-quality) used car. If buyers believe that 30% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?
A. $2,000
B. $2,500
C. $2,900
D. $3,500
Answer: C
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The shapes of the total product and marginal product curves are related because
a. an increase in total product pulls marginal product up. b. marginal product gives the slope of total product. c. marginal product increases as total product increases. d. the marginal product curve lies above the total product curve.
In the presence of asymmetric information,
A) all contracts are efficient. B) efficiency in risk bearing cannot be achieved. C) a trade-off exists between risk-bearing efficiency and production efficiency. D) no contracting will take place.
The terms scarcity and shortage are synonyms
Indicate whether the statement is true or false
To pay piece rates in order to elicit effort, it must be the case that
A. the firm does not want to maximize profits. B. workers refuse to accept a time rate. C. firms cannot monitor individual worker effort. D. the firm can monitor individual worker output. E. the production process relies on group work.