Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function TC = 2 + q. Determine the Cournot equilibrium
What will be an ideal response?
Firm A's profit is π = [10 - (qA + qB)]qA - 2 - qA. Maximizing with respect to its own output yields qA = 4.5 - qB/2. Similarly, firm B's best response is = 4.5 - qA/2. The equilibrium occurs when both firms produce 3 units. Price is 10 - 3 - 3 = 4.
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Graphically an increase in the short-run aggregate supply line represents a(n) ________, and a shift leftward of the long-run aggregate supply line represents a(n) ________.
A. adverse inflation shock; shock to potential output B. favorable inflation shock; shock to potential output C. shock to potential output; favorable inflation shock D. shock to potential output; adverse inflation shock
Define the concept of the real exchange rate and explain how it differs from the nominal exchange rate
What will be an ideal response?
The concept of "an invisible hand" led Adam Smith to believe that
a. if each person looks out for himself or herself, then chaos will inevitably ensue. b. pursuit of self-interest promotes economic well-being for society as a whole. c. governmental rule actually results in greater good than is apparent at the time. d. traditional religion is an appropriate guide for human behavior. e. All of the above are correct.
Historically, Keynesian economists have argued that government spending will stimulate aggregate demand more than tax cuts because
a. government spending will stimulate aggregate demand more quickly than a tax cut. b. there are fewer adverse side effects to an increase in government spending. c. all of the spending will add to aggregate demand, but a portion of the tax cut will be saved. d. an increase in government spending can quickly be reversed once the economy has recovered.