A monopoly can set any price it wants. So why does it still produce at a point where MR = MC, just like a perfectly competitive firm?
What will be an ideal response?
The point where MR = MC maximizes any firm's profit for the same reason it maximizes a perfectly competitive firm's profit. In particular, any unit for which MR > MC is a profitable unit to produce and so the firm wants to produce all of these units. As it increases its output, its total profit increases even as the difference between MR and MC shrinks. But as long as MR > MC, the unit is profitable and therefore is produced. Eventually the firm gets to the point where MR = MC. The firm does not want to go beyond this level of output, because for every unit beyond it MC > MR. Producing these units would lower the firm's profit. So, once it starts producing, the firm won't stop producing additional units of output before it reaches the level for which MR = MC. Then, once it reaches this point, it won't go beyond this amount. Therefore the condition MR = MC determines the profit maximizing level of output.
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The negative income tax has little support among economists because it distorts incentives to work.
Answer the following statement true (T) or false (F)
In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have
a. reduced inflation and unemployment. b. raised inflation and unemployment. c. reduce inflation and raised unemployment. d. raised inflation and reduced unemployment.
In the Eurozone, labor market integration (including labor mobility) between member nations is:
A) far ahead of the United States. B) on par with the United States. C) less than in the United States. D) structured differently because in the Eurozone workers have better benefits.
In the traditional Keynesian model, if the government increases spending, then
A) consumption will increase, and so real Gross Domestic Product (GDP) will increase by more than the increase in government spending. B) consumption will decrease, and so real Gross Domestic Product (GDP) will increase by less than the increase in government spending. C) consumption will remain the same, and so real Gross Domestic Product (GDP) will increase by the same amount of the increase in government spending. D) consumption will increase or decrease, and so real Gross Domestic Product (GDP) will increase or decrease depending on the change in consumption.