In a competitive industry buffeted by demand supply shocks, prices increase and decrease, but economic profits tend to revert to zero. Hence, profits are exhibiting

Which of the following statements is correct?

A) The markup pricing rule that is derived from the rule for profit maximization can be used as a substitute for determining the profit-maximizing level of output by equating marginal revenue and marginal cost. B) It is reasonable to assume that a profit-maximizing firm will never operate in the inelastic portion of its demand curve. C) The ability of a profit-maximizing firm to mark up price above average cost is unaffected by the price elasticity of demand for the firm's output. D) The markup factor and the price elasticity of demand are positively related, i.e., as the price elasticity of demand increases, the markup factor that the profit-maximizing firm can apply to its marginal cost in setting price increases as well.

If an inflationary boom exists, the appropriate fiscal policy is to:

a. increase the budget deficit. b. increase government spending and hold taxes constant. c. decrease government spending and/or raise taxes. d. hold government spending constant and decrease taxes.