Explain why the curve between A and B looks different than the curve from A to C. Provide an example of how a firm could opt to follow the A to C curve instead of the A to B curve.
What will be an ideal response?
Student answers should note that the A to B curve is a short-run curve, while the A to C curve is a long-run curve. In the short run, a firm cannot change its fixed variables, so to increase production it may need to make less efficient use of its plant and therefore incur higher costs. In the long run, the size of the plant can be adjusted, making it possible to keep average costs steady. For example, in the short run a computer chip manufacturer might have to keep its plant open around the clock to boost production, forcing it to offer overtime pay and leading to greater wear on its machinery. In the long run, the firm can reach the same output level in more cost-effective ways, such as by opening a larger plant.
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If a 2 percent rise in price leads to a 4 percent decrease in quantity demanded, then demand is
A) elastic and total revenue decreases. B) elastic and total revenue increases. C) inelastic and total revenue decreases. D) elastic, but we cannot tell what happens to total revenue without more information. E) Total revenue decreases but we cannot tell if the demand is elastic or inelastic without more information.
Which of the following statements is true?
A) Monetarists believe that the government should be very involved in managing and directing the economy. B) Monetarists believe that the economy is self-regulating. C) There is very little difference between monetarist and Keynesian thought. D) Monetarists hold that velocity is constant. E) a and c
The balanced-budget multiplier is equal to the
A) the autonomous spending multiplier. B) government spending multiplier plus the tax multiplier. C) simple multiplier minus the tax multiplier. D) government spending multiplier plus the simple multiplier.
Refer to Table 2-1. Assume Dina's Diner only produces sliders and hot wings. A combination of 20 sliders and 60 hot wings would appear
A) along Dina's production possibilities frontier. B) inside Dina's production possibilities frontier. C) outside Dina's production possibilities frontier. D) at the vertical intercept of Dina's production possibilities frontier.