Suppose Bev's Bags makes two kinds of handbags-large and small. Bev rents an industrial space where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra needles, thread and buttons, and labels. If Bev were to produce no bags, what would her variable cost include?
A. The measuring board
B. The cost of the fabric
C. Her variable cost would be zero if she produced zero bags.
D. The sewing machine
Answer: C
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The quantity supplied and price tend to vary
a. inversely. b. independently. c. in an unrelated fashion. d. directly.
During normal times, if the marginal propensity to consumer is 3/4, and the government borrows $10 billion in order to increase spending by that amount, real output will expand by
a. more than $40 billion, because both the additional borrowing and the additional spending will stimulate real output. b. $40 billion, because the net multiplier will be 4. c. less than $40 billion, because the additional borrowing will place upward pressure on real interest rates, weakening the impact of the multiplier. d. $10 billion, because during normal times, the government can borrow funds without any increase in interest rates.
Exhibit 10-2 A monopolistic competitive firm
To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 10-2 will charge a price per unit of:
A. zero. B. $5. C. $10. D. $15.
Limit pricing occurs when a firm sets price:
A. equal to marginal cost. B. equal to average cost. C. at different amounts for different groups of consumers. D. so low that other firms are prevented from entering the market.