What is the difference between positive and normative statements?
What will be an ideal response?
Positive statements tell what is and normative statements tell what ought to be. Positive statements can be tested to determine if they are correct or not, while normative statements use value judgments and so cannot be tested. For example, two economists might agree on the positive assertion that if the government spent its funds purchasing pharmaceutical drugs for poor older Americans rather than poor children, then poor older Americans would use more drugs and poor children would use fewer. But they might disagree on the normative conclusion of whether the government should pursue this policy. One economist might argue "It is not fair to have senior citizens suffer because they cannot afford medicine" and the other economist might argue "It is not fair to have children suffer because their parents cannot afford medicine."
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Suppose all firms in an industry have a production technology described by the production function 
. The cost of labor is 2 and the cost of capital is 4, and each firm faces a recurring fixed cost of 300.
a. Derive the long run cost and average cost functions for each firm. (Hint: Given the shapes of the isoquants implied by the production function, you should be able to do this without solving a calculus problem.)
b. What is the long run equilibrium output price?
c. How much does each firm produce in long run equilibrium?
d. Suppose market demand is given by 
. How many firms are in the industry in long run equilibrium?
e. Suppose the industry is currently in long run equilibrium. Derive the short run cost function for each firm (assuming labor is variable but capital is fixed in the short run).
f. Now suppose that demand falls to 
. What happens to output price in the short run? What happens to price and the number of firms in the long run?
What will be an ideal response?
Of the two conflicts, __________ more severe as the firm becomes smaller
A) the shareholder-lender conflict gets B) the manager-shareholder conflict gets C) both get D) neither gets
"Natural" real GDP is defined as the total output
A) at business cycle peaks. B) at business cycle troughs. C) that causes an inflation rate of zero. D) that causes the inflation rate to remain constant. E) produced when all of our resources are being used to their maximum capacity.
When one side of a market knows more about a product than the other side, the moral hazard problem is experienced
Indicate whether the statement is true or false