Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:
A. cause firms to standardize their product to limit the degree of competition.
B. make the industry allocatively efficient as each firm seeks to maintain its profits.
C. attract other firms to enter the industry since the barriers to entry are low.
D. reduce the excess capacity in the industry as firms expand production.
Answer: C
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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
In the long run, a firm in a perfectly competitive industry will supply output only if its total revenue covers its
A) implicit costs. B) fixed costs. C) explicit costs plus its implicit costs. D) explicit costs.
A person is dynamically consistent if:
A. lapses in his self-control never occur. B. his preferences over the alternatives available at some future date do not change as the date approaches or once it arrives. C. he always wants to follow through on his plans and intentions. D. All of these are necessary for dynamic consistency.
Improvements in the quality of consumer goods and services over time
a. cause inflation as measured by the CPI to overstate the actual inflation rate b. cause inflation as measured by the CPI to understate the actual inflation rate c. are accounted for in the CPI d. are insignificant and thus would not affect the CPI even if accounted for e. improve the accuracy and consistency of the market basket