What does elasticity of demand measure?
a. how responsive consumers are to advertising
b. how responsive consumers are to price changes
c. how much consumers are affected by layoffs
d. how much consumers are affected by inflation
Answer: b. how responsive consumers are to price changes
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A firm's private costs
A) include only its direct costs. B) is the private profit minus the producer surplus. C) include both direct and indirect costs. D) exclude the taxes on any externalities generated.
Suppose the fixed cost of building a nuclear power plant is $1 billion. Suppose also that the only variable cost is the labor of Homer Simpson, and he earns $10 per hour. If the plant generates 1,000 kilowatts each hour, and has already generated 1 billion kilowatts, what can you say about the marginal cost of the next kilowatt?
A. The marginal cost is falling. B. The marginal cost is equal to $.01. C. The marginal cost is equal to $1.01. D. The marginal cost is rising.