Which of the following is a key property of models?
A) All economic models begin with assumptions.
B) Empiricism is not essential for testing models.
C) All models can be used for a limited time period only.
D) All models are consistent and do not make incorrect predictions.
A
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Consider a firm with constant marginal cost that behaves competitively. A horizontal merger lowers the firm's marginal cost and causes the firm to behave like a monopoly. How does the merger affect producer's surplus, consumers' surplus, and social gain? Explain.
What will be an ideal response?
Suppose market demand is p = 10 - Q. Firms have a fixed entry cost of 5 and no marginal cost. If firm A is the incumbent, can it deter the entry of its rival, firm B?
What will be an ideal response?
If the price of good X increases by 1 percent, then the quantity supplied increases by more than 1 percent. This means
A) supply is elastic. B) supply is unit-elastic. C) supply is inelastic. D) the good has good substitutes.
Under the VAR assumptions, the OLS estimators are
A) consistent and have a joint normal distribution even in small samples. B) BLUE. C) consistent and have a joint normal distribution in large samples. D) unbiased.