What are the constraints that a firm faces? How does each constraint limit the firm's profit?
What will be an ideal response?
The three types of constraints a firm faces are technology constraints, information constraints, and market constraints. Technology is any specific method of producing a good or service and it advances over time. Using the available technology, the firm can produce more only if it hires more resources, which will increase its costs and limit the profit of additional output. Information is never complete, for the future or the present. A firm is constrained by limited information about the quality and effort of its work force, current and future buying plans of its customers, and the plans of its competitors. The cost of coping with limited information itself limits profit. Market constraints mean that what each firm can sell and the price it can obtain are constrained by its customers' willingness to pay and by the prices and marketing efforts of other firms. The resources that a firm can buy and the prices it must pay for them are limited by the willingness of people to work for and invest in the firm. The expenditures a firm incurs to overcome these market constraints will limit the profit the firm can make.
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A maximin strategy
A) maximizes the minimum gain that can be earned. B) maximizes the gain of one player, but minimizes the gain of the opponent. C) minimizes the maximum gain that can be earned. D) involves a random choice between two strategies, one which maximizes potential gain and one which minimizes potential loss.
In many cases the Coase theorem does not work well because
a. there are too few parties at the negotiation table. b. the government does not know about the Coase theorem. c. transaction costs are too high. d. transaction costs are too low.
A natural monopolist that is price-regulated at the marginal cost output level will:
a. be producing at the same output and price that an unregulated natural monopolist would choose. b. produce the optimal level of output and earn an economic profit greater than zero. c. produce the optimal level of output and earn a normal profit. d. eventually incur losses if MC is less than ATC.
The movement of individuals and households from one income quintile to another over time is called:
A. income averaging. B. wealth turnover. C. income mobility. D. the ratchet effect.