Which of the following best applies to the distinction between the "long run" and the "short run"?
A) The short run is a period of approximately 1-6 months while the long run is any time frame which is longer.
B) In the short run, only new firms may enter, while in the long-run firms may either enter or exit the market.
C) The rationing function of price is a short-run phenomenon whereas the guiding function is a long-run phenomenon.
D) All of the above statements are correct.
C
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Which of the costs discussed in the chapter is the most important when a firm is deciding how much to produce?
A. Marginal cost because this cost shows the additional cost associated with producing one more unit of output. Firms will use this information to decide to produce more or less output. B. Variable costs because these costs change as output changes. If the firm wants to maximize profits, it will choose to produce a quantity where variable costs are minimized. C. Fixed costs because these costs are spent and cannot be changed in the time period under consideration. If fixed costs are higher, the firm will choose to produce more output. D. Costs that are spent to improve the image of the firm. A firm will choose to increase output if it spends a large amount on advertising and brand image.
What is the problem with marginal cost pricing in the natural monopoly situation? How do regulatory agencies in the United States usually handle the problem?
What will be an ideal response?