If a firm is producing an output rate at which marginal cost is equal price, the firm
A. will not be covering its fixed cost.
B. is maximizing profits.
C. should increase its output level.
D. should reduce its output level.
Answer: B
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Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum (high-quality) used bike and $50 for a lemon (low-quality) used bike. If buyers believe that 50% of used bikes in the market are lemons (low quality), what fraction of used bikes sold will actually be plums (high quality)?
A. 8/30 B. 22/30 C. 8/22 D. 30/30
An indifference curve cannot be positively sloped because
A) the law of diminishing marginal utility would be violated. B) the substitution effect would be violated. C) a point to the right of another point will represent a lower quantity of both goods and a reduction in utility. D) a point to the right of another point will represent a higher quantity of both goods and an increase in utility.
Suppose that the demand and supply of money are initially in equilibrium, and that the demand for money increases. A monetary authority interested in keeping the money supply constant and the interest rate low must: a. adopt an expansionary monetary policy
b. adopt a contractionary monetary policy. c. increase the demand for money. d. decrease the demand for money. e. give up pursuing both goals at the same time.
Consider the indifference curve map and budget constraint for two goods, beef and potatoes. Suppose the good measured on the horizontal axis, potatoes, is a Giffen good. Beef is measured on the vertical axis and is a normal good. When the price of potatoes increases, the substitution effect causes
a. an increase in the consumption of potatoes, and the income effect causes a decrease in the consumption of potatoes. The substitution effect is less than the income effect. b. a decrease in the consumption of potatoes, and the income effect causes an increase in the consumption of potatoes. The substitution effect is greater than the income effect. c. an increase in the consumption of potatoes, and the income effect causes a decrease in the consumption of potatoes. The substitution effect is greater than the income effect. d. a decrease in the consumption of potatoes, and the income effect causes an increase in the consumption of potatoes. The substitution effect is less than the income effect.