The rational expectations hypothesis suggests that
A) people are creatures of habit and tend not to change their economic behavior in the short run.
B) people are rational if they make forecasts about economic activity.
C) people use all available information to make forecasts about future economic activity and adjust their behavior to these forecasts.
D) people use all available information to make forecasts about future economic activity but often fail to adjust their behavior to these forecasts.
Ans: C) people use all available information to make forecasts about future economic activity and adjust their behavior to these forecasts.
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A monopolist has a marginal cost of $4 and no fixed cost. It faces the following inverse demand curve: p = 40 - q. The monopolist can introduce a new packaging for its product. Such new packaging does not alter the marginal cost. It makes the product more attractive for the consumer, and it would lead to a new inverse demand curve p = 40 - 0.5q. What is the maximum amount that the monopolist
would be willing to invest in this new packaging project? A) $245 B) $324 C) $420 D) It cannot be determined.
Externalities are consequences visited upon those individuals residing outside decision processes
Indicate whether the statement is true or false