When factor markets are competitive, it always pays a profit-maximizing firm to
a. use more of the factor.
b. bid very low prices for inputs.
c. reduce the use of all inputs.
d. use that quantity of input that makes MRP equal to the price of the input.
d
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The higher the marginal propensity to consume, the
A) smaller will be the simple multiplier. B) more insulated will be consumption spending from exogenous shocks to the economy. C) less effective will be any given monetary or fiscal policy. D) more unstable the economy will be.
Under adaptive expectations theory, people persistently:
a. underestimate inflation when it is slowing down. b. overestimate inflation when it is accelerating. c. underestimate inflation when it is accelerating. d. adapt to the prevailing inflation rate.
"Rate averaging" is only possible if
a. the firm is protected from price competition and new entry. b. the firm is protected from losses resulting from unsuccessful innovation. c. the firm can choose the level of service it wishes to provide. d. "cream skimming" is permitted.
John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that
a. trade can make everyone better off. b. people face trade-offs. c. rational people think at the margin. d. people respond to incentives.