Explain why many fishermen on a commonly owned lake continue to fish until the revenue from the average catch is equal to the marginal cost of fishing -- and why the same is not true for a firm that employs fishermen to fish on a privately owned lake.
What will be an ideal response?
When fishermen fish on a commonly owned lake, they each catch on average the same number of fish. So their decision of whether or not to put a boat out to fish is based on the value of the average catch of fish given the number of boats on the lake. If a firm owns the lake, it will employ additional fishermen until the marginal revenue product is equal to the wage. And the marginal revenue product is the marginal number of fish caught by the last boat times the price of fish.
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A decrease in autonomous investment ________
A) increases equilibrium output at any interest rate B) causes a movement down along the IS curve C) shifts the IS curve to the left D) all of the above E) none of the above
Consider the accompanying payoff matrix.
If Column Cruises offers reduced rates, and Row Resorts keeps its rates high, then Row Resorts will earn ________, and Column Cruises will earn ________.
A. 300; 300 B. 500; 10 C. 50; 50 D. 10; 500
Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; lower; potential B. expansionary; higher; potential C. recessionary; lower; potential D. recessionary; lower; lower
The practice of spreading one's wealth over a variety of different financial investments in order to reduce overall risk is called:
A. diversification. B. risk reservation. C. following the risk premium. D. allocation.