Using marginal analysis, explain why many restaurants and coffee shops offer low-cost refills on beverages (for example, a shop may charge $1.50 for a cup of coffee and only $.50 for a refill).
What will be an ideal response?
The cost of the beverage includes the cost of serving it and of collecting and cleaning the cup or glass (or the cost of the cup, if it is disposable). The marginal cost of the refill is just the cost of the beverage itself, since the customer uses the same cup. Thus, the marginal cost of the refill is lower, and hence the profit-maximizing firm will charge a reduced price for it.
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Which of the following is an example of a supply shock?
A) a surprise increase of the money supply B) an increase in the price level C) a sharp increase in the price of oil D) an increase in government spending
Refer to Table 14-2. Suppose pricing PlayStations is a repeated game in which Wal-Mart and Target will be selling the game system in competition over a long period of time. In this case, what is the most likely outcome?
A) a noncooperative equilibrium in which each firm charges the high price B) a noncooperative equilibrium in which each firm charges the low price C) a cooperative equilibrium in which each firm charges the low price D) a cooperative equilibrium in which each firm charges the high price
Which of the following was NOT a cause or a characteristic of the 1994/95 Mexican peso crisis?
A) An overvalued exchange rate B) An inflow of large foreign portfolio capital C) The inability of the IMF, the world bank, and the NAFTA member countries (i.e., the United States and Canada) to predict the looming financial crisis D) Shifts by the world capital markets toward more conservative and risk-averse investments because of interest and exchange rate movements around the world E) High domestic investments with insufficient domestic savings
The futures price
A) reflects traders' expectations of the spot price on the day of delivery. B) is always above the spot price on the day of delivery. C) is always below the spot price on the day of delivery. D) is always equal to the spot price at every point in time.