The profit-maximizing rule for a perfectly competitive firm when choosing its level of output is to produce where price is equal to marginal cost
The profit-maximizing rule for a firm hiring labor in a perfectly competitive labor market is to hire workers up to the point where the marginal revenue product equal to the market wage. How are these two rules related to one another?
In both cases, the firm is comparing the cost of production with the potential revenues from the sale of the product at the margin. In the first (P=MC), the firm is comparing the price of the output with the cost of production directly. In the second (W=MRP), information on output price is included in marginal revenue product and the cost of production is represented by the wage paid to labor.
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A firm's basic goal is best described as
A) maximizing total revenue. B) maximizing sales. C) maximizing profit. D) minimizing total cost.
An association of producers that fixes common prices and output quotas is known as a
A) cartel. B) common selling organization. C) joint-marketing arrangement. D) trade association.
When it is possible to trade two separate currencies for a common third currency, economists refer to profit opportunities as:
a. backward arbitrage. b. speculation. c. triangular arbitrage. d. forced equilibrium.
Price indexes like the CPI are calculated using a base year. The term base year refers to:
A. the first year that price data are available. B. any year in which inflation was higher than 5 percent. C. the most recent year in which the business cycle hit the trough. D. an arbitrarily chosen reference year.