Suppose that Frank is considering giving Mike eight paperback books in exchange for 2 CDs. Explain the conditions under which this trade would be mutually beneficial. Also explain the conditions under which Frank and Mike won't make the trade.
What will be an ideal response?
This trade would be beneficial as long as Frank's marginal rate of substitution of substitution of paperback books for CDs' is greater than 4 books per CD and Mike's marginal rate of substitution of paperback books for CD is less than 4 paperbacks per CD. If Frank's MRS of paperbacks for CD's is less than 4, he won't agree to the trade. If Mike's MRS of paperbacks for CD's is greater than 4, he won't agree to the trade.
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When Sidney's Sweaters, Inc makes exactly zero economic profit, Sidney, the owner
A) is taking a loss. B) will shut down in the short run. C) makes an income equal to his best alternative forgone income. D) will boost output.
Price discrimination by a firm is
A. illegal under all circumstances. B. legal if the firm can show that the difference in the prices charged customers is justified by a difference in the costs of serving them. C. legal if the firm can show that the demand for its good is relatively elastic. D. legal under all circumstances.
Price discrimination occurs when
A. Sellers charge two separate prices for the same product to separate consumers. B. Minorities pay a higher price for a product than everyone else. C. Sellers charge one price to all consumers but not wholesalers. D. Sellers charge a higher price than is reasonable.
Refer to the above figure. Other things being equal, when the government imposes a price floor at P2, then we would expect
A. price to decline until an equilibrium is achieved at P0. B. consumers to bid against each other for goods and force the price even higher. C. a surplus will occur. D. the quantity demanded is Q2.