Exhibit 7-8 A firm's cost and marginal revenue curves
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In Exhibit 7-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do?
A. This firm should shut down.
B. This firm could increase profits by increasing output.
C. This firm could increase profits by decreasing output.
D. This firm should continue to operate at its current output.
Answer: D
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Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 10 workers in each country. Political pressure from the fish lobby in Farmland and from the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports
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