Describe the effect that a surplus of tobacco will have on a cigarette producer's pricing and production decisions.
What will be an ideal response?
A surplus of tobacco will, in the absence of barriers, cause the price of tobacco to fall. This lower cost will affect the cost of producing each and every cigarette, thus marginal cost will fall. Lower marginal cost causes the profit-maximizing quantity to rise and, if demand is downward sloping, the price charged to fall.
Economics
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Because Product X has a large positive income elasticity, it is likely that the product
A) has many good substitutes. B) has few good complements. C) is a necessity. D) is a luxury.
Economics
Perfect competition and monopolistic competition are similar in that both market structures include
A) price-taking behavior by firms. B) a homogeneous product. C) no barriers to entry. D) very few firms.
Economics