Define the following terms and explain their importance to the study of economics.
a. common stock
b. corporation
c. limited liability
d. plowback
What will be an ideal response?
a. Common stock represents partial ownership of a corporation. Based on the amount of shares issued, and the amount a stockholder owns, one can determine the stockholder’s percentage vote, and the percentage share of dividends of the corporation to which the stockholder is entitled.b. A corporation is a firm that has the legal status of a fictional person. The firm is owned by stockholders and is run by a set of elected officers and a board of directors. The advantages of a corporation to the owners are limited liability, access to great quantities of capital, ease of operation with hired management, and permanence of the firm when an owner joins or leaves. The disadvantages are double taxation of income and the possibility that managers do not pursue the interests of the owners.c. Limited liability refers to the protection from risk that corporate investors have. They cannot be asked to pay more than they have invested in the firm in the event of large debts incurred by the firm. This feature makes financial investment in corporate stock relatively more attractive than the proprietorship or partnership.d. Plowback is the portion of corporate earnings retained by the firm and put back into the company. As a source of funds for U.S. corporations, plowback represents over 80 percent of the total funds.
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Consider the market for nonalcoholic beers from the previous question. Cudweisers' price in a Nash equilibrium (assuming Bertrand competition in these differentiated beers) is about
a. 0.99 b. 1.09 c. 1.71 d. 2.55
Assume that an unemployed person expects inflation to be 4.5 percent. In reality, inflation turns out to be 2.9 percent. If wage expectations lag behind actual price changes:
a. job offers below the reservation wage will decline, and the unemployment rate will rise. b. job offers above the reservation wage will rise, and the unemployment rate will fall. c. job offers above the reservation wage will decline, and the unemployment rate will rise. d. job offers above the reservation wage will decline, and the unemployment rate will fall. e. job offers below the reservation wage will increase, and the unemployment rate will fall.
Number of FigsVCMCAVCFCTCATC0???100??19090????2?????1353??80???4????400?
Table 5.4 presents the cost schedule for David's Figs. If David produces zero figs, David's total costs are:
A. $0. B. $90. C. $100. D. $130.
Answer the following questions true (T) or false (F)
1. In an oligopoly, minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales. 2. An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium. 3. The equilibrium in the prisoner's dilemma is a Nash equilibrium.