Explain the difference between fixed costs in the short run and fixed costs in the long run
What will be an ideal response?
In the short run fixed costs are sunk; in the long run, fixed costs are avoidable.
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Which of the following is true of a typical firm in a monopolistically competitive industry?
A) All firms have identical cost structures. B) Product differentiation allows a successful firm to emerge as a market leader in the industry. C) Each firm acts independently. D) The more successful firms have an incentive to merge in order to exert greater market power.
Suppose that medical researchers discover a new drug which slows the aging process, allowing the average life span in the United States to increase to 95 years of age. The permanent-income hypothesis suggests that
A) consumption spending would increase since lifetime income increases. B) consumption spending would increase since estimates of permanent income would increase. C) consumption spending would decrease since savings would rise to provide income for the longer retirement periods. D) None of the above is correct since predicted future annual incomes may not change.
The above figure shows the payoffs to two firms deciding to open a gasoline station in an isolated town. If firm A decides first, what will happen? If there is a $60 fee to enter this market, what will happen?
What will be an ideal response?
After hiring a new employee, a manager finds that the total output has increased. When the manager hires another employee however, he realizes that although the total production has increased, the increment is less than the previous case. This is the result of:
a. diseconomies of scale. b. a general economic downturn. c. diminishing marginal returns. d. the lack of skills of the two new employees. e. constant returns to scale.