A firm experiences increasing returns to scale; that is, doubling all its inputs more than doubles its output. What can be inferred about the firm's short-run costs?
What will be an ideal response?
Returns to scale is a long-run phenomenon because all inputs must be changed. Thus we can infer little about the firm's short-run costs from this information, other than the firm is likely to experience diminishing marginal returns in the short run due to the fact that it will have a fixed factor of production (and thus short-run marginal costs will rise with output).
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A public good
A. is available to all and cannot be denied to anyone. B. is characterized by rivalry and excludability. C. can be profitably produced by private firms. D. produces no positive or negative externalities.
Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs
First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer's shut down in the short run? A) Yes, because he is incurring an economic loss. B) Yes, because he cannot cover all of his fixed costs. C) No, because is making positive economic profit. D) No, because he can cover all of his variable costs.
Which of the following is an example of a negative externality?
A. Bad weather reduces the size of the wheat crop. B. A reduction in the size of the wheat crop causes the income of wheat farmers to fall. C. Smoking harms the health of nonsmokers who are nearby. D. Smoking harms the health of the smoker. E. all of the above
Which of the following is an example of price competition?
a. Nike signs LeBron James to a $90 million contract for endorsements. b. Kellogg's puts the images of Snap, Crackle, and Pop on boxes of Cocoa Krispies, linking the cereal with Rice Krispies. c. McDonald's introduces new garden McSalads. d. Tropicana introduces the Blue Raspberry Rush juice. e. Apple offers a 20% discount on its new range of iPhones.