What are the sources of increasing returns and economies of scale of the recent increase in trend rate productivity experienced in the U.S.?
What will be an ideal response?
There are several sources of increasing returns and economies of scale. First, firms are able to use more specialized, and thus more productive, capital and labor to expand operations. Second, firms are able to spread the high development costs over their larger output. Third, many of the products these firms produce can satisfy a large number of customers at the same time. Software, for example, has a one-time production cost and can be sold at a relatively low cost to a large number of customers. Fourth, there are network effects from a larger portion of people using a product, thereby increasing the effectiveness of the product. This includes cell phones, the internet, and software packages. Fifth, firms gain from learning by doing and once they master a process, they benefit by being able to recreate it at a very low cost.
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Your boss wants to know if you should lay off any workers. You answer that you should lay off workers if the
A) marginal revenue product of labor is greater than the nominal wage rate. B) marginal product of labor is greater than or equal to the real wage rate. C) marginal revenue product of labor is equal to the nominal wage rate. D) marginal product of labor is less than the real wage rate.
Exhibit 15-1 Production possibilities curves
In Exhibit 15-1, the production possibilities curves of wheat and corn for Nabia and Pada are presented. In Pada the cost of producing one more unit of corn is equal to:
A. 3 units of wheat. B. 3 units of corn. C. 1/3 unit of wheat. D. 15 units of wheat.
In order to sell more units, a monopolist must lower its prices. As shown in the table below, total revenue will initially ____________ and then ______________.
a. increase, continue to increase b. decrease, continue to decrease c. increase, decrease d. decrease, increase
Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD2. In the short run
A) the unemployment rate will be larger than the rate before the contractionary monetary policy. B) the unemployment rate will be smaller than the rate before the expansionary monetary policy. C) the unemployment rate will be the same rate as before the expansionary monetary policy. D) the unemployment rate can increase or decrease depending upon how much the LRAS will shift.