What is the difference between the demand curve for a resource under pure competition and under imperfect competition?
What will be an ideal response?
The demand for a resource depends on the marginal productivity of the resource and the price of the product the resource produces. In purely competitive markets, the price of the product remains constant and only the marginal product of an additional unit of a resource changes. The MRP curve or the firm’s resource demand curve declines solely because of diminishing marginal productivity. In imperfect competition, the price of the product will decline as more output is produced and marginal productivity will also decline. Thus the two factors on which resource demand depends will decline. The result is that the resource demand, or MRP curve, will tend to fall faster and be less elastic (resource employment will be less responsive) to a change in resource price for the imperfectly competitive firm compared with the purely competitive producer.
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If the Fed increases the quantity of money and lowers the federal funds rate, real GDP ________ and the price level ________
A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases E) increases; does not change
How can a corporation's board of directors and its managers try to reduce the principal-agent problem?
What will be an ideal response?
A competitive equilibrium is Pareto optimal if there is no way to rearrange or to reallocate goods so that
A) anyone can be made better off. B) no one can be made worse off. C) someone can be made better off without making someone else worse off. D) someone can be made better off without making everyone else worse off.
Suppose two goods (x and y) are being produced efficiently and that the production of x is always more labor intensive than the production of y. Production depends only on two factors (capital and labor); these may be smoothly substituted for each other. The total quantities of these inputs are fixed. An increase in the production of x and a decrease in the production of y will:
a. increase the capital-labor ratio in each firm. b. decrease the capital-labor ratio in each firm. c. leave the capital-labor ratio for each firm unchanged. d. increase the capital-labor ratio in y production and decrease the capital-labor ratio in x production.