Why should a perfect competitor produce at which price equals marginal cost?
What will be an ideal response?
For a perfect competitor, its market price equals marginal revenue. Because profits are maximized when marginal revenue equals marginal cost, a perfect competitor will therefore maximize profits by producing at marginal revenue equals marginal cost. A lower or higher level of output than that profit-maximizing output level will only result in lower profits.
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State the law of supply and explain it
What will be an ideal response?
Suppose you cash in a Certificate of Deposit (a small time deposit) to acquire the traveler's checks you'll need for your vacation. What happens to M1 and M2?
A) M1 and M2 both increase. B) M1 stays the same and M2 increases. C) M1 increases and M2 decreases. D) M1 increases and M2 stays the same.
Which of the following could explain why the terms of trade of developing countries might deteriorate over time?
A) Developing country exports consist mainly of manufactured goods. B) Developing country exports consist mainly of primary products. C) Commodity export prices are determined in highly competitive markets. D) Commodity export prices are solely determined by developing countries. E) Developing country exports are too diverse.
In year one, the GDP deflator is 100 and in year two 110. If nominal GDP in year two is $300 billion, what is real GDP for year two?
A) $200 billion. B) $100 billion. C) $272.73 billion. D) $220 billion.