Suppose the DeBeers company exercises monopoly power in the distribution of diamonds. This year, the company earns economic profits and maximizes profit. This implies that the price of diamonds per carat will
a. exceed the marginal cost of diamonds, but be equal to the average cost of diamonds.
b. be equal to the marginal cost of diamonds.
c. exceed both the marginal cost and average cost of diamonds.
d. be equal to the average cost of diamonds.
c. exceed both the marginal cost and average cost of diamonds.
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Which of the following is not a necessary characteristic of a perfectly competitive industry?
A. The industry or market demand is highly elastic. B. Consumers see no difference between the product of one firm and that of another. C. There are so many firms that none can influence market price. D. Firms can easily enter or exit the industry.
If the absolute value of the tax elasticity of supply is 0.5, a tax increase of 10 percent will
A. Decrease output by 5 percent and increase tax revenues. B. Increase output by 5 percent and decrease tax revenues. C. Increase output by 20 percent and decrease tax revenues. D. Decrease output by 5 percent and decrease tax revenues.
Inventory investment occurs when
A. shopkeepers check their inventories. B. grocers sell stocks of canned goods off their shelves. C. automobile dealers add to their stocks of unsold cars. D. individuals buys more company stock shares online.
Suppose that a normal rate of return in the economy is 10% and the rate of return being earned by firms in a competitive industry equals exactly 10%. Which of the following is a correct prediction based on this information?
A. Firms in the industry will not undertake any investment projects other than to replace depreciating capital stock. B. New firms will want to enter this industry, as the existing firms are earning an economic profit. C. The industry size will contract. D. Firms already in the industry will want to expand to try to increase their rate of return.