To the casual observer it is often difficult to understand how a company would spend several million dollars building a plant or other structure and then simply stop and abandon the project midway. How can this be justified on economic grounds?
What will be an ideal response?
The building or structure is viewed as a fixed cost. The firm may very well have determined that even if finished the project would not be profitable. Rather than incur additional expenses on a project that is likely not to be profitable it is better to cut losses and abandon production of the structure rather than complete it.
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Suppose that a foreign monopolist supplies the entire domestic market (there is no domestic production). The home country then applies a $10 tariff on imports from the foreign monopolist. The home country will be better off if:
a. the terms-of-trade gain is less than the deadweight loss from the tariff. b. the price change is more than the deadweight loss of the tariff. c. the deadweight loss is more than the price change from the tariff. d. the terms-of-trade gain is more than the deadweight loss from the tariff.
Taxpayers and consumers end up paying for agricultural price supports
a. True b. False