Starting from long-run equilibrium, an increase in autonomous investment results in ________ output in the short run and ________ output in the long run.
A. lower; potential
B. higher; higher
C. lower; higher
D. higher; potential
Answer: D
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If a firm has excess capacity, it
A) produces less than its efficient scale. B) should advertise to maximize profits. C) should decrease its markup to increase its profit. D) is a perfectly competitive firm. E) must face a horizontal demand curve.
If Happy Cows, a dairy manufacturer, sells its sour cream division, this is an example of ________.
A) divestiture B) forward integration C) backward integration D) outsourcing
Steve and Lee have been shipwrecked on a deserted island in the Hawaiian chain. Their economic activity consists of either gathering pineapples or fishing. We know Steve can catch four fish in one hour or harvest two baskets of pineapples. In the same
time Lee can reel in two fish or harvest two baskets of pineapples. If they each spend four hours a day fishing and four hours a day harvesting pineapples, how many of each will Steve produce? How many will Lee produce? What will their total production be? If Steve and Lee don't trade with each other, who is better off? Why? Assume Lee and Steve both operate on straight-line production possibilities curves. What is Steve's opportunity cost of producing a basket of pineapples? Of a producing a fish? What is Lee's opportunity cost of producing a basket of pineapples? Of a producing a fish? If Steve and Lee traded, who has the comparative advantage in fish? Pineapples? If Lee and Steve specialize in and trade the good in which they have a comparative advantage, how much of each good will be produced in an eight hour day? What are the gains from trade?
It is very important to distinguish between the short run and the long run when we are discussing
a) the aggregate demand b) the aggregate expenditures c) the aggregate supply d) changes in the price level e) all of the above