All business firms should consider their fixed costs in determining the prices they set.
Answer the following statement true (T) or false (F)
False
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A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?
A) The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs. B) They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product. C) The firm's cost increases as it improves the product but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure. D) Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products.
An example of moral hazard is
a. A taxi driver paid per mile taking the shortest route b. a piece-rate garment worker shirking more than a per jour worker c. an hourly salesman working less hard than a commission salesman d. an author on contract going to as many book signings as one with a percentage royalty rate
If two families are identical with respect to size, income, general expenses, etc., and are taxed equally, we say that there is
a. horizontal equity. b. vertical equity. c. observance of the ability-to-pay principle. d. intergenerational equity.
If the required reserve ratio in an economy is equal to 10 percent and Bank A receives $100,000 as deposits, then Bank A would _____ in order to make profits
a. keep $90,000 in reserves and loan out $10,000 b. keep $10,000 in reserves and loan out $90,000 c. keep the entire amount in reserves and charge a high fee on withdrawal d. loan out the entire amount at the prevailing rate of interest