Money illusion results from expectations based on real purchasing power rather than current nominal income.
Answer the following statement true (T) or false (F)
False
Money illusion is based on expectations of nominal income, not purchasing power.
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The idea of opportunity cost is relevant
A. only in consumption decisions. B. only in production decisions. C. only in financial decisions. D. in almost any kind of decision.
A monopolist faces a downward sloping demand curve that is equal to which of the following?
a. The prevailing market price. b. The market demand curve. c. Its marginal cost curve. d. Marginal revenue.
When a firm is able to put idle equipment to use by hiring another worker,
a. variable costs will rise. b. variable costs will fall. c. fixed costs will fall. d. both fixed costs and variable costs will rise.
You should do this problem in three steps. First: Fill in Table 1. Assume fixed cost is $1000 and price is $575. Second: Draw a graph of the firm's demand, marginal revenue, average variable cost, average total cost, and marginal cost curves on a piece of graph paper. Be sure to label the graph correctly. On the graph, indicate the break-even and shutdown points and the firm's short-run and long-run supply curves. Third: Calculate total profit in the space below, then answer questions a through d. (a) The minimum price the firm will accept in the short run is $_______. (b) The minimum price the firm will accept in the long run is $_______. (c) The output at which the firm will maximize profits is _______. (d) The output at which the firm will operate most efficiently is ________.
Table 1:
Table 2:
