Pappy's Popcorn Emporium operates in a perfectly competitive industry and hires you as an economic consultant. Pappy's is currently producing at a point where market price equals its marginal cost. Its total revenue exceeds both its total variable cost and its total cost. You advise Pappy's to
A. lower its price immediately in anticipation of new firms entering the industry.
B. continue to produce in the short run to maximize its profit.
C. raise its price so that it can increase its profit.
D. cease production immediately because it is incurring a loss.
Answer: B
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The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output. B. government policy. C. decreasing inflation only. D. increasing or decreasing inflation.
Bonnie can produce either 10 hats or 20 scarves in a month. Phil can produce either 5 hats or 10 scarves in a month. Therefore:
A) Phil has a comparative advantage in hats, Bonnie in scarves. B) Bonnie has a comparative advantage in hats, Phil in scarves. C) Phil has a comparative advantage in both hats and scarves. D) Bonnie has a comparative advantage in both hats and scarves. E) Neither of them has a comparative advantage in hats or scarves.
The demand curve faced by the monopolist
a. has a constant price elasticity. b. is the industry demand curve. c. is identical to the firm's MR curve. d. is identical to the firm's TR curve.
P-TV and QRS-TV are trying to decide whether to air a sitcom or a reality show in a given time slot. Viewers like both sitcoms and reality shows, but sitcoms are more expensive to produce than reality shows since real actors need to be hired. QRS-TV makes its decision first, and then P-TV observes that choice before making its decision. Both stations know all of the information in the decision tree below.
P-TV will air a sitcom:
A. never. B. no matter what QRS-TV does. C. only if QRS-TV is also airing a sitcom. D. only if QRS-TV is airing a reality show.