State and explain the No Marginal Improvement Principle (for finely divisible actions).
What will be an ideal response?
If actions are finely divisible, then marginal benefit equals marginal cost (MB = MC) at any best choice at which it is possible to both increase and decrease the level of the activity a little bit. Suppose the X* is the best choice of an action. If MB > MC at X*, then a small increase in X would increase net benefit. If MB < MC at X*, then a small decrease in X would increase net benefit. Therefore, if X* is the best choice, MB = MC at X*.
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If the marginal propensity to consume is 0.75, then the value of the tax multiplier is
A) -2.5. B) -3. C) 1.25. D) 1.4.
If a good has “snob appeal,” consumers may purchase less when the price falls.
Answer the following statement true (T) or false (F)
The XYZ Co sells shirts. Shirts with the company label on the tag are perceived to be of higher quality than shirts with the store's label. Yet, shirts are of identical quality regardless of label
The demand for perceived high-quality shirts is ph = 50 - qh. The demand for perceived low-quality shirts is pl = 10 + ph – ql. The firm can produce shirts at TC = qh + ql. How many shirts does the firm label as low quality and how many as high quality? What prices are charged?
Which of the following is not true with regard to mutual funds? a. Some mutual funds allow investors to invest in all stocks in a given market
b. Mutual fund returns are greater than those for an individual who selects his/her own stocks. c. They allow individuals to spread risk across many different companies. d. Investors gain access to the services of a financial expert.