Describe the effect that a surplus of tobacco will have on a cigarette producer's pricing and production decisions.
What will be an ideal response?
A surplus of tobacco will, in the absence of barriers, cause the price of tobacco to fall. This lower cost will affect the cost of producing each and every cigarette, thus marginal cost will fall. Lower marginal cost causes the profit-maximizing quantity to rise and, if demand is downward sloping, the price charged to fall.
You might also like to view...
Why do trade-offs occur? How are budget constraints related to trade-offs?
What will be an ideal response?
Assume there are only two individuals in an economy, Lisa and Bart. The utility possibilities frontier for these individuals is given as:
120 = UL + UB where UL is Lisa's utility and UB is Bart's utility. Lisa's current level of utility is 20, Bart's level of utility is 90. This combination is: A) inefficient. B) economically efficient. C) impossible, because it is outside of the welfare frontier. D) none of the above
A person who is willing to bear more risk will buy
A. common stock. B. government bonds. C. preferred stock. D. bonds.
If a regulator forced a natural monopolist to set P = MC
A. the monopolist would break even. B. the monopolist would suffer economic losses. C. the monopolist would earn economic profits. D. the monopolist would earn monopolistic profits.