The Bumpy Ride Suspension company makes springs for bicycle seats. Currently the springs sell for $5 each. Being profit maximizers, the company makes just enough springs so that the marginal cost of the last spring produced is $5 . Their average total
cost at that output is $3.50 . If they currently produce 1,000 springs and the market price falls by $1, approximately how much profit will be lost?
a. all of the profit will be lost
b. profit will fall by $1 per spring
c. there will be no loss of profit
d. more than $1,000 but less than $1,500
e. less than $1,000
Answer: E
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Which of the following situations is least likely to involve mutual interdependence?
A) Canada is thinking about banning all imported beef from the United States. B) Octavia is thinking about trading in her Toyota Prius for a BMW 220i. C) Walmart is considering moving up the start-time for its Black Friday sales to 12:01 AM on Thanksgiving day. D) McDonald's is thinking about lowering all its menu prices by 50 percent.
Refer to Table 12-1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level?
A) It must rise to offset the increased cost. B) It must fall. C) The firm will shut down. D) It will remain the same.
An incumbent firm uses limit pricing
A) to set price below a potential rival's marginal cost, thus making entry unprofitable. B) to set one price for a quantity of a good below a certain limit, and a second price for purchases above the limit. C) when it has no other advantages over a potential rival. D) if it is limited in the quantity of inputs it can purchase to produce output.
Suppose this economy is currently closed. ________ is/are most likely to want open trade, and ________ is/are most likely to oppose opening the economy to trade.
A. The government; bike purchasers B. Bike manufacturers; bike purchasers C. Bike purchasers; bike manufacturers D. Bike manufacturers; the government