Explain why in the case of economies of scope the production possibility frontier is bowed outward. What will be an ideal response? ANSWER With economies of scope a firm uses less resources if it produces 2 goods jointly instead of producing the 2 goods in two firms separately. This means that the firm can […]
Marginal Revenue is A) the increase in total revenue from selling one more unit of output. B) equal to P(1+1/ε). C) equal to P when the price elasticity of demand is infinite. D) All of the above. ANSWER D
If a market is controlled by one perfect price discriminator who is able to charge each consumer the highest price that consumer is willing to pay, the seller will produce output until the price paid by the last consumer is equal to the marginal cost of making the good. That is, the price of the […]
Why do many people choose to not read the manuals included with their new computer? A) They perceive that learning by doing decreases costs faster than learning by reading. B) They perceive that learning by doing is more enjoyable than learning by reading. C) They perceive that learning by reading is not sophisticated. D) They […]
At the current level of output, a firm’s marginal cost equals 16 and marginal revenue equals 10. The firm A) is producing the profit-maximizing amount. B) should produce more. C) should produce less. D) Not enough information. ANSWER C
Short-run costs are never equal or lower than long-run cost. Indicate whether the statement is true or false ANSWER False. Since the long-run curve “envelopes” all short-run curves there is always a level of output where short-run cost are equal to long-run cost. However, short-run cost can never be lower than long-run cost.
A firm is currently producing 1140 units of output according to the production function q = L4/3K1/2 and faces input prices equal to w = $20 and r = $80. In the short run, capital is fixed at 5 units. In the long run, the firm’s costs are A) lower because the firm substitutes towards […]
For a monopoly, marginal revenue is less than price because A) the firm is a price taker. B) the firm must lower price if it wishes to sell more output. C) the firm can sell all of its output at any price. D) the demand for the firm’s output is perfectly elastic. ANSWER B […]
The United States is the most inequitable country in the developed world. Indicate whether the statement is true or false ANSWER False. Efficiency means how many goods to produce, and equity means how the goods are allocated. They do not move in opposite directions. Even if one might say that the United States is […]
The learning curve is the relationship between A) returns to scale and cumulative costs. B) marginal costs and current output. C) marginal product of labor and current output. D) average costs and cumulative output. ANSWER D