For many corporations, a major portion of the cost of production is fixed in the short run. Should these very large fixed costs be ignored when the executives are making output and pricing decisions? Why?
What will be an ideal response?
Yes, these fixed costs should be ignored when making short-run output and pricing decisions because they do not affect marginal costs or marginal benefits in the short run. In the long run, all costs are variable costs and there are no long-run fixed costs.
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Suppose that a bond promises to pay $107 next year but the interest rate falls from 7 percent to 3 percent per year. How much will the price of the bond be and why?
What will be an ideal response?
Refer to the Article Summary. The article discusses income inequality, and for some people this means a more equitable distribution of income is needed in the economy. Would an equitable distribution of income necessarily be the most efficient distribution of income?
A) No, it is impossible to have an economically efficient distribution which is also an equitable distribution. B) No, an economically efficient distribution of income would not necessarily be equitable. C) Yes, in order for the distribution to be equitable, it must also be efficient. D) Yes, equitable and efficient are two different words which have the same definition.