According to the kinked demand curve model, if there is a modest increase in a firm’s variable production costs, what is likely to happen to the firm’s profit-maximizing level of output and the amount of profit earned by the firm? Why? What will be an ideal response? ANSWER Given the way the kinked demand […]
Increase in capacity utilization will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above. ANSWER A
The income elasticity of demand for health care is generally less than 1, indicating consumers consider these services to be luxuries. Indicate whether the statement is true or false ANSWER FALSE
Failure to account for the increased transportation costs that would result from building fewer and more centrally located production facilities could result in firm managers selecting a scale of operation that is larger than the optimum. Indicate whether the statement is true or false ANSWER TRUE
Assume the auto market is initially in equilibrium with imports from Japan taking up a significant share of the market. Now assume a quota on imports of Japanese cars is established. What will occur at the initial equilibrium price to signal market participants regarding the change that has taken place? A) A surplus is created […]
The text’s discussion of the airline industry, the soft drink industry, and the doughnut industry reveals a common theme when it comes to the types of competitive practices firms in each industry engage in. What is it and what advantage does it offer firms? ANSWER Firms in each of the industries listed above tend […]
Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share. Indicate whether the statement is true or false ANSWER FALSE
Domestic currency depreciation will: A) help domestic firms that export and hurt domestic firms that import. B) help domestic firms that import. C) hurt domestic firms that export and help domestic firms that import. D) hurt domestic firms that export. ANSWER A
Decrease in the real interest rate will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above. ANSWER B
“Learning by doing” results in decreased average costs of production and is illustrated by a downward shift of the firm’s long-run average cost curve. Indicate whether the statement is true or false ANSWER TRUE