The Soup Nut serves his signature minestrone soup in two different bowl sizes, large and small. What strategy should he use to extract the most surplus possible out of customers who come in two types, regular and big eaters, when he cannot distinguish between the two types by observation?
a. Distort the size of the small bowl downward to make it less attractive to the big eaters, allowing him to
raise the price of the large bowl.
b. Distort the size of the large bowl downward to make it attractive to both big and regular eaters.
c. Distort the size of the small bowl upward to make it harder for regular eaters to separate themselves from big eaters.
d. Distort the size of the large bowl upward to make big eaters less likely to consume the small bowl.
a
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Answer the following questions true (T) or false (F)
1. The slope of the production possibilities curve is called the marginal rate of technical substitution. 2. The slope of an isoquant is called the marginal rate of product transformation. 3. The shape of the long run average cost curve is typically U-shaped in practice.
Starting from long-run equilibrium, a large tax increase will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. recessionary; lower; potential B. expansionary; lower; potential C. expansionary; higher; potential D. recessionary; lower; lower