Assume that firms A and B have the same minimum efficient scale of operation and, at current production levels, both firms are incurring the same average costs of production. However, firm A’s output is 5 times larger than firm B’s output. How is this possible? ANSWER The minimum efficient scale of operation simply refers […]
Assume there is a decrease in the number of substitutes for a good produced by a profit-maximizing price-setting firm. All else constant, this would cause the firm’s ability to markup price above average cost to: A) decrease. B) stay the same. C) increase. D) cannot be determined with the information given. ANSWER C
U.S. export spending is not affected by U.S. real income but is influenced by the economic activity of its major trading partners and the exchange rate, hence export spending is taken as autonomous. Indicate whether the statement is true or false ANSWER TRUE
The difference between the interest income or receipts earned on investments in the rest of the world by the residents of a given country and the payments to foreigners on investments they have made in the given country is called: A) unilateral transfers. B) bilateral transfers. C) net investment income. D) gross investment income. […]
Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower’s security is known as A) barter. B) redistribution. C) financial intermediation. D) taxation. ANSWER C
Briefly summarize the empirical literature on the long-run costs typically incurred by firms in a variety of industries. In particular, is there reason to believe that firms’ long-run cost curves assume the typical U-shape? Why or why not? What will be an ideal response? ANSWER The existing research provides evidence that firms reach the […]
Holding everything else constant, a country’s exports will decrease if the: A) country’s currency appreciates. B) country’s currency depreciates. C) country’s currency is revalued. D) none of the above. ANSWER A
Assume goods X and Y are complements. A decrease in the price of X would cause the demand for Y to increase. Indicate whether the statement is true or false ANSWER TRUE
Explain how “learning by doing” and transportation costs each affect the long-run average cost curve. What will be an ideal response? ANSWER Learning by doing results in increased productivity of an input. Thus, for each scale of operation, the cost of producing each unit of output decreases because the amount of inputs needed to […]
An approach to analyzing consumer behavior in which consumer reaction to different prices is analyzed in a laboratory situation or a test market is called: A) price experiments. B) non-price experiments. C) focus groups. D) none of the above. ANSWER A
