From this chapter we know that a profit maximizing competitive firm will set its price equal to the market price. Briefly describe why a profit maximizing competitive firm will not set its price above the market price. Also, describe why a profit maximizing competitive firm will not set its price below the market price.
What will be an ideal response?
If the competitive firm sets its price above the market price the quantity demanded of its product will fall to zero and thus profits will fall. At the same time, there is no reason for a competitive firm to lower its price below the market since it can sell as much as it wishes at the market price. By lowering its price, the firm reduces its revenue and thus reduces its profits.
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Spreading wealth across multiple investments is called
A) diversification. B) arbitrage. C) speculation. D) asset liquification.
Assume that a firm's production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to
A) increase. B) decline. C) remain constant. D) fall to a minimum and then rise.
C + i + g = gdp + m – x
Indicate whether the statement is true or false
Suppose a retail store was offering 10 percent off list prices on all goods. The benefit of the 10 percent savings is:
A. negatively related to the list price of the good. B. unrelated to the list price of the good. C. positively related to the list price of the good. D. zero since costs and benefits shouldn't be measured proportionally.