If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is below the average variable cost, it will ( )
A. keep producing in the short run but exit the market in the long run
B. shut down in the short run but return to production in the long run.
C. shut down in the short run and exit the market in the long run.
D. keep producing both in the short run and in the long run.
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Peanut butter has an upward-sloping supply curve and a downward sloping demand curve. If a 10 cent per pound tax is increased to 15 cents, the government’s tax revenue ( )
A. increases by less than 50 percent and may even decline.
B. increases by exactly 50 percent.
C. increases by more than 50 percent.
D. The answer depends on whether supply or demand is more elastic.
Because consumers can sometimes substitute cheaper goods for those that have risen in price, ( )
A. the CPI overstates inflation.
B. the CPI understates inflation.
C. the GDP deflator overstates inflation.
D. the GDP deflator understates inflation.
The deadweight loss from monopoly arises because ( )
A. the monopoly firm makes higher profits than a competitive firm would.
B. some potential consumers who forgo buying the good value it more than its marginal cost.
C. consumers who buy the good have to pay more than marginal cost, reducing their consumer surplus.
D. the monopoly firm chooses a quantity that fails to equate price and average revenue.
If a nation has high and persistent inflation, the most likely explanation is ( )
A. the central bank creating excessive amounts of money.
B. unions bargaining for excessively high wages.
C. the government imposing excessive levels of taxation.
D. firms using their monopoly power to enforce excessive price hikes.
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