Pappy's Popcorn Emporium operates in a perfectly competitive industry and hires you as an economic consultant. Pappy's is currently producing at a point where market price equals its marginal cost. Its market price is greater than its average variable cost but less than its average total cost. You advise Pappy's to
A. lower its price so that it can sell more units of output.
B. produce in the short run to minimize its loss, but exit the industry in the long run.
C. raise its price until it breaks even.
D. cease production immediately because it is not covering its operating costs.
Answer: B
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Consider the utility function 
. If 
, the elasticity of substitution is equal to 
.
Answer the following statement true (T) or false (F)
The Department of Education noticed that for loans granted to students without any strings, the average grade point average of the students decreases dramatically over time, while the students whose loans renew only if they pass their courses tends to stay stable. This could be due to a
a. Adverse selection problem b. Moral hazard problem c. Typical college life phenomenon d. None of the above
The United States was unable to maintain its dominance in the production of televisions because:
A. automated techniques allowed production to be outsourced to countries with less-skilled workers. B. the raw materials necessary to build televisions became scarce in the United States. C. the product designs evolved too rapidly for engineers in the United States to keep up. D. the highly technical skills necessary to produce televisions are greater in other countries.
According to the analysis in your text, the school voucher program would
A. increase the quality of education, but not improve the welfare of low income families. B. decrease the quality of education. C. increase the quality of education. D. not affect education quality, but would make lower income families better off.