Spyros owns a pancake restaurant. For years, customers have had two pricing options: two pancakes for $6.00 or three pancakes for $8.00. Both pricing options sell equally well. Spyros wants to add an option to order four pancakes to the menu. Using your knowledge of diminishing marginal return, what price would you recommend he set for four pancakes in order to maximize the number of pancakes he sells? Explain how you arrived at your answer.
What will be an ideal response?
The marginal utility of the fourth pancake will be less than that of the third pancake. This means that the price of the fourth pancake must also be less than that of the third pancake ($2.00) to make it equally attractive to consumers; therefore, four pancakes should cost less than $10.00. However, because four pancakes provides more total utility than three pancakes, it should cost more than three pancakes ($8.00).
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Answer the following statement true (T) or false (F)
The time and money spent in carrying out financial transactions are called
A) economies of scale. B) financial intermediation. C) liquidity services. D) transaction costs.
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a. Workers differ in their productivities. b. Productivity of workers increases initially but later declines. c. The labor demand curve is backward bending. d. Marginal revenue product of different inputs used by firms vary. e. Employers compete among themselves to hire the best workers.