Answer the question on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is P L and that of capital is P C . The marginal product of labor is MP L and that
of capital is MP C . The firm sells its product competitively at a price of P X . Refer to the given information. If MP C /P C > MP L /P L , the firm:
A. may be maximizing profits, but it is not minimizing costs.
B. may be minimizing costs, but it is not maximizing profits.
C. is neither minimizing costs nor maximizing profits.
D. is minimizing costs and maximizing profits.
Answer: C
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For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?
A) It hires economists to estimate the market demand for the product. B) It evaluates the costs and benefits of producing the good. C) It takes a vote in Congress. D) It conducts public surveys to determine if consumers want the product.
If the long-run equilibrium of an economy is disrupted by an unanticipated increase in aggregate demand (such as might result from unexpectedly strong demand for exports due to the rapid growth of incomes abroad),
a. the price of resources will decrease. b. the natural rate of unemployment will decrease. c. actual unemployment will temporarily fall below the natural rate. d. prices will decrease.
Long-run equilibrium for a monopolistic competitor is characterized by
A) a price exceeding marginal cost. B) marginal cost pricing. C) economic profits. D) too few firms in the industry.
It may be misleading to label a trade deficit as unfavorable or adverse because:
A. the multiplier does not apply to a trade deficit. B. a trade deficit increases a nation's aggregate output and employment. C. a nation's consumers benefit from a trade deficit during the period it occurs. D. a trade deficit precludes inflation.